Buy-to-let mortgage change that means more security for tenants

KeysIf your idea of a rental tenant is the stereotypical student or a twenty-something flat sharer, forget it.

Today's tenants are a broad mix, with many families and older people now making up the rental picture. I'm a wife and mother in my mid-thirties with a two-year-old toddler and twins on the way, and my family currently rents a three-bed suburban semi with a garden. Hardly The Young Ones.
Indeed, more and more of us are renting our homes, with the private rented sector now accounting for a significant 16.5% of all housing, according to the Government.

Because of this shift in the demographic of tenants – one fifth of families now rent – more tenants are looking for long-term security, according to homelessness charity Shelter. As a result, a standard six- or 12-month tenancy agreement doesn't quite cut it.

For families with young children, for example, Shelter points out that it can be extremely disruptive to have to regularly move, and it is hard to plan nursery or school places when you have no security with your home. The Labour Party agrees with this and supported the idea of longer-term tenancies in a recent policy review.
While some landlords would be happy to offer a longer tenancy – preferring the security of long-term rent with no void periods – they have historically been unable to do this on a mortgaged property.


Short-term outlook
The majority of buy-to-let mortgage lenders offer their deals based on a six- or 12-month maximum tenancy. They don't generally accept mortgage applications if there is a longer-term contract in place, and some are wary about changing their criteria to allow long-term tenancies.

It's the sort of move that makes lenders' credit risk analysts wince. After all, if the property needed to be repossessed, it would certainly cause complications if there was a long-term tenant residing there.

But last week Nationwide announced that it will now allow landlords to take a buy-to-let mortgage with its subsidiary, The Mortgage Works, based on a tenancy agreement of up to three years instead of the standard 12 months.

The lender claims to be the first mainstream lender to do this (though Woolwich actually already accepts Assured Shorthold Tenancies of two years) and says that allowing landlords the choice to offer longer-term lets has the potential to provide more stability to the increasing numbers of people who rent homes privately.

Shelter has welcomed the move by Nationwide and reckons that two-thirds of renters would like the option of staying in their home long term.

So far, so good.

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Buy-to-let mortgage change that means more security for tenants

Pressure for change
Of course charities like Shelter are right to put pressure on the industry to make changes that give borrowers and landlords the option to lock into more secure, long-term contracts.

It's an issue that has long been discussed among lenders and, while many have reservations over long-term tenancies being in place, they also recognise that some landlords and some tenants want to be able to have that flexibility.
The Nationwide move is likely to prompt others to follow, as they realise that the barriers to accepting long-term tenancies in buy-to-let are not insurmountable. Of course, it may mean that in the future we see certain clauses put in place that give the landlord permission to raise the rent, for example, as well as having get-out clauses for the tenant.

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If it ain't broke...
However, some people are not convinced that there is a problem that needs fixing in the buy-to-let sector, nor a significant demand for these criteria shifts.
Anecdotal evidence from lenders suggests they are hardly swamped by landlords demanding mortgages that allow for long-term tenancies. Indeed if there was such a big swathe of potential business out there, surely they would have exploited the opportunity by now, and priced in the risk?

Remember that a long-term contract with a tenant could work against landlords if interest rates rise and they cannot increase their rent for three years. They could fall into arrears and ultimately see the property repossessed – and that's no good for anyone. Shorter contracts allow landlords to adapt to changing market forces – be it market rents or wider interest rates.

Plus, for every tenant who wants the security of a long-term tenancy, there is at least one who wants the freedom and flexibility of a six-month Assured Shorthold Tenancy (AST) that then moves onto a rolling monthly contract. I certainly wouldn't have wanted to sign up to a rental property for more than six months.

Finally, just because you have a six-month contract doesn't mean the tenancy needs to end after this time – the majority of lets continue on a rolling basis anyway. In fact, according to the National Landlords Association half of tenants have lived in their existing property for at least four years. It argues there isn't a huge demand for longer tenancies, since in practice they are already achieved under the existing system.

There's no denying the pressure on lenders to accept longer-term tenancies and the fact that some tenants have a real need for them – especially families with young children who want the security.

It looks as though the mortgage industry will adapt to meet this need and follow in the footsteps of Nationwide by allowing long-term tenancies. I'm just not sure how many landlords will actually want to take them up on it.

If you are a tenant or a landlord let us know if the current system leaves you feeling vulnerable or restricted. Would you prefer the option of a long-term tenancy agreement?

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Buy-to-let mortgage change that means more security for tenants

Of course with all these things, the value it adds depends on the property you have to start with, and the kinds of improvements you make, but Which? estimates the cost of a new kitchen at £8,000 and HSBC calculates the added value to your property at £4,500 - which is a clear loss.

This has been done by 41% of people in the last three years, and 29% of people plan it in the next three. It's cheaper than a kitchen, and Which? estimates the cost at £3,000. This is roughly the same value that HSBC says it will add to your property - so you'll break-even.

It may be difficult, but getting your property ready for sale means depersonalising it. 

Clutter can distract viewers and more than half (60%) of the property valuers who took part in the 2012 HSBC Home Improvement Survey said that the number one way to increase a property's chance of selling quickly, and for a good price, was to de-clutter.

This has been installed by 31% of us in the last three years, and 15% plan it in the next three. Installing central heating is a disruptive job, and according to WhatPrice it will cost you around £3,235. However, this is the first of the top ten to actually pay off. Property expert Phil Spencer says it will add £5,000 to the value.

A quick splash of paint can work wonders on tired-looking walls, and sticking to neutral tones is the safest bet.

Keeping the colour scheme simple, fresh and inviting will help potential buyers to see themselves living in your home.

Some 18% have added one in the last three years, and 30% will in the next three. This is another huge job, but with more people struggling to move and deciding to improve instead, it's increasingly popular. The amount it costs will depend on an enormous number of things, from the area you have to work with, to the size of the extension. However, assuming you add a single room you could spend around £20,000. HSBC estimates it will add around £15,500 to the value of the property, so you are unlikely to gain as much as you spend.

According to Halifax valuers, loft conversions - which require lofts with a roof height of at least 2.4 metres - are a good way to increase the potential sale price of your home.

Be sure to stick to your budget, though. The average loft conversion will cost between £10,000 and £30,000, while HSBC's figures show that they typically add £20,876 to the value of a property.

Putting in new windows adds around £5,265 to the value of the average property and can reap big rewards when it comes to energy efficiency.

It is, however, sensible to ensure that your new windows are in line with the style of your property to maximise the added value - particularly as putting them in can set you back about £5,000.

Off road parking or a garage can be especially advantageous in areas where parked cars line both sides on the street.

Nationwide's figures show that adding a garage, which can cost anything between £8,000 and £25,000, can increase the value of your property by 11%.

Outside space is just as important as inside - especially when people are seeing your home for the first time.

While 63% of the HSBC survey expert respondents said that repainting or varnishing a front door would make a difference, only 23% of homeowners recognised this. Peter Dockar at HSBC said: "It is often the smaller jobs like painting the front door that can make all the difference when looking for a sale."

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