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The Welsh Assembly has announced its plan that Renting Homes (Wales) Act 2016 (the Act) will come into force 1 December 2022. The Act will change the way all landlords in Wales rent their properties.
As set out in our previous articles (Renting Homes: overhaul of Welsh private rented sector finally arrives and The Renting Homes (Wales) Act 2016: what is it and how can you prepare?), the main changes are as follows:
Buy to let mortgage lenders in Wales will be interested in the changes in respect of how they might affect their existing portfolios and considering whether any changes will need to be made to protect their position in relation to future buy to let lending where the security is a Welsh property.
The FFHH requirements may assist lenders as they will create minimum standards for rental properties, which are likely to protect the lender’s security. However, properties which do not meet the standards may fall in value and may be difficult to insure. It would be sensible to review buy to let mortgage conditions and perhaps to include an express term that the borrower must maintain the property to at least the standards required by the Act.
The changes to the names of tenancy agreements and tenants do not make a material difference in practice, however we suggest that the mortgage conditions are reviewed and any definitions changed to include the defined terms set out in the Act from the date it comes into force to avoid any confusion.
The Act has no provision equivalent to Schedule 2 of the Housing Act 1988 which allowed a lender whose mortgage pre-dates the tenancy to repossess a rented property if it has a valid power of sale which it wants to exercise to dispose of the property with vacant possession. This provision was not widely used but will now be unavailable to lenders. Accordingly, it is likely to take lenders longer to obtain vacant possession of a buy to let property.
The provisions on succession and protections from eviction are helpful in providing security in respect of rental income which is often the source of the borrower’s income to make mortgage payments. However, in the event of default, the provisions may be problematic for lenders as longer periods will need to be allowed before possession can be taken. This is something to consider in relation to the strategy to be adopted when a buy to let mortgage goes into default. It will also be a consideration for LPA Receivers who will need to allow longer notice periods and may need to rectify any failures by the borrower to comply with the Act before notice can be served. That said, the lender may be able to sell its security subject to the tenancy which may be a more attractive option now that contract-holders have greater security of tenure.
In terms of obtaining information regarding occupation contracts, the requirement for them to be in writing and for key terms to be included will assist lenders as so long as they can obtain a copy, all of the key information will be clear. However, lenders may still face difficulties getting hold of occupation contracts and may want to include a provision within the mortgage terms and conditions that the borrower must send them a copy of any new occupational contracts or any variations made during the term of the occupation contract. That said, the situations where obtaining information may be difficult could well be those where the landlord has not complied with the Act. In these circumstances, it would be sensible to appoint LPA Receivers who may make enquiries and take steps to comply with the Act before serving a possession notice.
However, when faced with a lender taking action, contract holders may well wish to co-operate and provide a copy of the occupation contract. If the lender is aware that the property is a buy to let and the borrower is not providing information regarding occupation and any occupation contract in place, it would be sensible to undertake enquiries to find out who is in occupation, perhaps by instructing an enquiry agent to visit the property, or alternatively appointing Receivers.
These enquiries could reveal that the property has been abandoned, in which case the Act provides clarity upon the notice that needs to be provided and the time period to be allowed.
Although the Act will not come into force until 1 December 2022, there is no grace period allowed. We can help you navigate these changes. Lenders should review their existing portfolios of buy to let properties in Wales and consider the changes that may need to be made in respect of new lending for Welsh rental properties.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at July 2022. Specific advice should be sought for specific cases. For more information see our terms & conditions
07 July 2022
Insights 18 NOVEMBER 2022