Is the Introduction of Extended Contracts Bad News for Buy-To-Let Landlords?

According to a leading letting agent, the introduction of mandatory minimum three-year tenancies by the Government could mean that accidental landlords and small scale buy-to-let investors will be confronted with more upheaval.

The proposal of a three-year tenancy by the Government could make it increasingly difficult for buy-to-let landlords to fund their property purchases. However, Partner at Carter Jonas, Fiona Bourke asserts that extended tenancies will increase pressure in alternative ways.

Despite the objective of the plan being to provide private tenants with a high level of security, enabling them to settle down, it is Bourke’s argument that these risks may exceed the benefit of financial security for the smaller scale buy-to-let investors in addition to the accidental landlords.

She comments: ““With more rights being given to tenants, the three-year term potentially has less value to the landlord should tenants decide to leave part way through their tenancy, which they will have the freedom to do.
“Should landlords potentially come across problematic tenants it will also become harder for landlords to manage them if they are locked into a longer-term agreement.

“In my area of Wandsworth [in south London], rental agreements are often much shorter than the national four-year average and we have a significant number of local, individual and accidental landlords who may reconsider their options in light of these changes in legislation.
“Furthermore, such reconsideration could be fuelled further by the prospect of rent rise caps in future.

“Venture capitalists and asset management companies will be buying up property with the ever so slightly more safeguarded guarantee of a long-term return on investment, it [the planned new rules] could bring about a new buy-to-let audience who recognise that we’re fast becoming more of a rental society and the new laws may give landlords more stability in the long run.”