Factsheet 30 - Investing in Residential Property

 

Investing in Residential Property

 

The Market:

At the start of the Century, nearly 90% of the population lived in rented accommodation.  By 1987, this figure had dropped to around 7%, partly as a result of shortage of accommodation brought about by two World wars, but mainly due to tenant protection legislation in the form of Rent Acts, which froze rents and gave the tenant security of tenure.  Combined with high inflation, which diminished value of rent, tax incentives given to those who wished to purchase their own property and the 'right to buy', the private rented sector continued to retract.  Letting was viewed as a bad investment.

With owner occupation levelling off at 72%, but 40,000 new homes required each year, future demand for rented property in the private sector is bound to increase.  Instability in employment with more short term contracts, student loans and tuition fees having to be re-paid prior to house purchase and fewer 'right to buy' sales to existing tenants of council houses, means that there will be an increasing demand.

The Housing Acts:

The Housing Act of 1980 gave tenants in the public sector the right to buy, but introduced the concept of private landlords being able to regain possession at the end of short term leases through the protected shorthold tenancy and the assured tenancy.  Landlords of newly built homes would be unfettered by the Rent Acts in relation to rent, provided they contracted to adhere to strict conditions.  Neither scheme was successful.

The 1988 Housing Act brought about incentives for private landlords to let, free of Rent Act restraints as to a 'fair rent'.  The 'assured shorthold' was born, allowing a 'market rent', subject  to one appeal to the Rent Assessment Committee during the term of the shorthold.  The 1996 Housing Act reduced this right of appeal against the agreed rent to once during the first six months of the tenancy, abolished the minimum six month rental and shortened the period of possession for rent arrears from three months' to two months'.

The Housing Acts of 1988 and 1996 allowed letting to be again considered as an investment.  In 1990 only 15% of tenancies were assured shortholds.  By 1994, the figure was 40%.  Since 28 February, 1997, unless otherwise stated, all short leases will automatically be assured shortholds and the percentage should increase substantially.

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