The advantages and disadvantages of long-term tenancies for landlords

Long-term tenancies are being encouraged by the Government, but it looks unlikely that landlords will be falling over themselves to lengthen their tenancies.

While many tenants - particularly those with families - will welcome longer-term contracts, there are pros and cons for landlords.

Many landlords will welcome deals that extend beyond a traditional six or 12-month agreement as they will provide a guaranteed income for longer. However, some property investors will prefer short-term deals for the flexibility that they offer and the ability to remove problematic tenants more easily.

Crucially for landlords, this is also the view of many lenders, who often offer a maximum 12-month agreement as part of the terms on their buy-to-let loans.

Why do some lenders oppose longer-term tenancies?

Many banks and building societies are reluctant to allow longer agreements. This is mostly because they’re concerned that they won’t be able to repossess the property if the mortgage repayments are not paid and there’s still a tenant on a long-term contract in the property.

In cases where landlords fail to keep up with the mortgage repayments - even though they are receiving the rental income - there is the option of what is called a ‘receiver of rent’. This allows the lender to collect the rental income direct from the tenants.

The process has gone some way in helping to reassure lenders that their loans will be repaid, with the industry body the Council of Mortgage Lenders reporting that more lenders are looking into offering longer-term tenancies.

Do letting agents oppose longer-term tenancies?

Though lenders are getting on board with longer term tenancies, it could well be harder to reassure letting agents that longer-term tenancies are a good idea.

If properties come up for let more often, it will mean letting agents miss out on the extra fees that come with the check in and check out process.

Though the Government has announced it is going to ban letting fees being charged to tenants, it has yet to pass any legislation on the subject.

Could tenants be penalised for cutting short a longer-term tenancy?

There may also be tenants who want to cut short the tenancy agreement - such as if they are on a three year contract and want to leave after two years. In such cases, it would be reasonable to suggest a penalty at the start of the agreement that both the tenant and landlord can agree. This could be a fixed fee or foregoing the deposit, for example.

The Government raised the issued of longer-term tenancies in its recent white paper - which outlined its plans to improve the housing market - saying it is something that it wants to ‘encourage’.

However, it seems there is a long way to go before all parties involved in the buy-to-let process welcome the idea and embrace it.

How are you feeling about longer term tenancies? Let us know in the comments.

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