Industry divided on Tenancy Deposit Scheme

Paragon Mortgages and BM Solutions dispute claims from Landlord Mortgages that further regulation will stifle the buy-to-let sector.

Research from Landlord Mortgages has disclosed that the Tenancy Deposit Scheme will lead to an increase in the number of landlords using letting agents.

In 2005, 22% of landlords who used letting agents intended to manage their own property at the end of their current tenants lease but this dropped to just 4% in 2006.

Landlord Mortgages claims 52% of landlords who now plan to use a letting agent say the introduction of the Tenancy Deposit Scheme is the reason.

The Tenancy Deposit Scheme, due to be launched in October 2006, will make it compulsory for landlords to join either a custodial or insurance based version of the scheme. The scheme is aimed at safeguarding consumers against rogue landlords who illegally retain all or part of a tenant’s deposit when they vacate a property.

The Department for Communities and Local Government says that property investors choosing to use letting agents is a positive move.

Landlords fear this scheme will further complicate the administration required. They also blamed time constraints, fears about additional future legislation, an increasingly competitive rental market and the desire for professional advice for their increased reliance on letting agents.

Lee Grandin, managing director of Landlord Mortgages, says such legislation may drive landlords out of the market which would affect consumers in the long term and stifle the sector.

He says: “This increased use of letting agents will also impact the potential real rental yields on residential property and may even dissuade investors from entering the market. Therefore, it will be interesting to see if this trend has an impact on average rents and the availability of property over the long term.”

But John Heron, managing director of Paragon Mortgages, says landlords are unlikely to use letting agents to manage a property and does not think increased regulation will change this.

But he says: “Our own research and market response indicates increased dissatisfaction on the part of landlords with the sheer number of regulations and statutes impacting on them.”

Claire Mortimer, senior press officer at BM Solutions, says: “As with all elements of regulation, the Tenancy Deposit Scheme needs to be implemented carefully to ensure it does not have a negative effect on the market.

“Suffice to say that our buy-to-let business volumes are at record levels and, as expected, the market continues to grow.”