Excessive regulation of the real estate market may have the opposite effect

Real estate market UK some of the most advanced in the world. Nevertheless, it is constantly exposed to various improvements and influences from the government. And now, we plan to introduce a uniform Statute of Tenants. The document is designed to raise standards in the sector of rental residential property and to encourage the conclusion of contracts for a longer period.

But excessive regulation of any industry may ultimately have the opposite effect and lead to market disruption. Is no exception and the housing market in the UK. Contracts signed for too long a period, can cause lower quality of housing.

The idea to introduce a long-term lease agreements appeared in connection with the desire of market participants to ensure the stability of families and to avoid the “gray contracts” that are dishonest operators in this sector.

I could not agree more with the fact that families must provide more stability, but the question there is another side of the coin – in case of signing the long term contract, homeowners may face a significant limitation of proposals to increase the rent arrears and difficulties with the release of his property from the lease if the tenant will be greater arrears of rent.

The risk of long-term leases lies in the financial security of the banks issuing a mortgage loan to purchase real estate for lease. Suppose the Bank will have to sell the collateral – the apartment where you can pay the borrower because the debt of the tenant.

To sell the apartment may be problematic, because the tenant would secure a long-term contract and the property will be sold with the tenant, which greatly reduces its liquidity.

Banks, insuring its risks of such losses, immediately raise mortgage rates, which in turn will lead to higher prices in the rental market of residential property in the UK, the main burden of which will fall on the shoulders of the tenants and the market rent will have the effect of backward planning.

Another danger of the new rules is that landlords, looking to the future at the conclusion of a long-term contract, try to lay in the price increase in the cost that is sure to intensify the process of inflation in the real estate market and will reduce the availability and quality of rental housing.

And the quality of the market are determined by the availability and a good choice.

The landlord, relying on a long lease and small periods of downtime, needs however to understand that such comfort can be smoothed out by increasing the mortgage payments, insurance company, employment Agency. Such costs are unlikely to encourage homeowners to sign long-term lease.

Ideally, the government should leave the market alone, but to provide the investors investing in property for rental, benefits that would be allowed to reduce the rent and allow to run processes of self-regulation of the market on the basis of a healthy competition for prices and quality.

® Alice Morgan 14.10.2013