Will the housing market for buy-to-let property be affected by an impending change in Local Housing Allowance (LHA)?
The demand for rented properties shows no signs of slowing down, as increasing numbers elect to rent rather than buy as a result of financial uncertainty, a sluggish property market, and continued difficulties in arranging a mortgage.
That being said, many lenders are now offering buy-to-let mortgages at reasonable interest rates, and with rents rising this continues to be an attractive proposition for investors. Someone looking for a suitable property to buy for rent may prove the best opportunity for anyone currently trying to sell a home.
Single under-35s no longer eligible for Local Housing Allowance
However, LHA rules for single people aged between 25-35 living in self-contained accommodation will be changing. From January 2012 they will only receive the shared accommodation rate which at present is paid to single people under 25.
This means that single people under 35 and with no children will no longer receive the standard rate, but instead the much lower shared accommodation rate.
That rate is calculated on the assumption that they are sharing with another tenant, whether or not that is the case. The demand for rented accommodation from those who rely on LHA to pay their rent will obviously be reduced. Those looking to invest in areas with a high percentage of LHA-eligible renters should bear this in mind.
A further problem for this sector of the market is that many local authorities are intent on limiting groups of people living together in ‘family homes’ through what are known as ‘Article 4 Directions’.
What is an Article 4 Direction?
Homes shared by between three and six unrelated people are classed as ‘Houses in Multiple Occupation’ (HMO). The government last year changed the planning rules so that a change of use from a dwelling house to an HMO is now classed as ‘permitted development’ and does not usually require consent.
A buy-to-let investor’s Conveyancing Solicitor will usually address this when carrying out searches during the Conveyancing process.
However, many local councils, especially in seaside and university towns, think that this will have an adverse impact on their areas and are introducing Directions which will remove permitted development rights in their areas. Planning permission will then be required to use a house as an HMO, and it is clear that this will be difficult to obtain.
The National Landlords Association believes that these changes are going to have a massive impact on the supply of good quality, affordable private rented accommodation in the parts of the country where they are created.
Steve Bartlett, the NLA’s Local Representative in Dorset, is quoted as saying:
“these changes are likely to affect 500 single people in Bournemouth alone, many of whom will be forced to find shared housing accommodation at a time when the Article 4 Direction to require planning consent for any new shared housing in Bournemouth (which comes in effect in December 2011) will prevent the private-rented sector from making this type of accommodation available to them. A further increase in homelessness in the area is expected because of this issue. ”
The NLA thinks it likely that while this will cause problems for reputable landlords who wish to increase their portfolios, rogue landlords will be likely to continue operating under the radar and with local authorities wasting their resources on this unnecessary administration they will not have sufficient money for targeted enforcement.
The indicators are that the demand for homes to let will remain strong for properties suitable for letting in the private sector.
The change in LHA rules may well lead to a reduction in demand for certain types of property, especially when coupled with new restrictions created in areas where Article 4 directions have been imposed.