Increasing numbers of local councils are introducing licensing schemes for landlords, costing them up to £1,000 to register.
One in five boroughs are now operating such schemes, which can require all landlords in a given area to obtain a licence or face criminal charges.
Their introduction leads to the question of whether councils are ushering a potential buy-to-let register by the back door, as calls for national landlord licensing have so far not been acted on.
Failing to obtain a licence is a criminal offence and can result in prosecution or fines
In some cases, landlords could have to fork out up to £1,000 to gain a licence, at a time when tax and regulatory changes are forcing many smaller landlords out of the sector.
Meanwhile, figures show that in some locations many more landlords have been prosecuted for not being licensed than for letting substandard properties.
This has led property industry figures to question whether these schemes actually protect tenants, or are just a council money-spinner and added cost to an already squeezed industry.
There are three main types of licensing scheme; mandatory, additional, and selective.
The first two apply only to houses of multiple occupation, such as house shares, while selective licensing can apply to any privately rented home within a designated area.
For this type of licence, the landlord can expect to pay anywhere between £500 and £1,000. Charges are then added if the landlord needs to make changes to their licence type.
A selective licence requires tenants as well as landlords to be vetted, and is usually implemented in boroughs with high levels of anti-social behaviour, low housing demand, poor property conditions, high levels of migration, high levels of deprivation, or high levels of crime.
Failing to obtain a licence in these cases is a criminal offence and can result in prosecution or a financial penalty of up to £30,000.
On conviction, the landlord can face an unlimited fine.
Campaign groups argue that these schemes have been necessary to bring living conditions in certain areas up to acceptable standards – and have in fact led to the prosecution of hundreds of rogue landlords.
As an example, London’s Newham Council, which piloted the scheme in 2012, reported that in its first two-and-a-half years it made 611 prosecutions against 492 landlords.
Polly Neate, chief executive of housing charity Shelter, said: ‘Too many renters suffer at the hands of landlords who regularly exploit their tenants.
‘Licensing schemes, alongside the new national database of law-breaking landlords, and banning orders, are all tools that can help councils to identify and stamp rogues out.’
Dan Wilson Craw, director of campaign group Generation Rent, agreed: ‘Providing a home is a huge responsibility so it’s reasonable to have safeguards in place to ensure that homes that are let out are safe.
‘Licensing also gives councils a streamlined process to tackle criminal landlords that can save them months of work building up a case that isn’t guaranteed to be successful.’
Landlords have accused councils of implementing the schemes as a way to increase revenue
Are the councils fleecing landlords?
Trade bodies and lobbyists argue however that the schemes are ineffective at rooting out criminal landlords, with some accusing local councils of viewing licensing schemes as money-making opportunities.
David Smith, policy director for the Residential Landlords Association, said: ‘Licensing by its very nature relies on landlords to pro-actively make themselves known to their local authority.
‘Criminal landlords who fail to provide secure and safe accommodation to their tenants will not come forward.
‘Councils need a much smarter system that frees them up to find and root out those criminals who will never willingly make themselves known.’
Chris Norris, of the National Landlords Association, went as far as to suggest that councils were using licensing schemes as money-making operations.
‘There has been a noticeable increase in selective licensing schemes across the country,’ he said.
‘More are likely to be introduced as councils look to increase their revenue under the guise of improving housing standards and cracking down on anti-social behaviour.’
While these schemes do generate plenty of cash for the councils, millions of pounds in some cases, by law the revenue is ring fenced and councils cannot make a profit – the money must be spent on raising standards in the local private rented sector.
Selective licensing does not always lead to a widespread crackdown on rogue landlords
Are tenants better off?
The introduction of selective licensing does not always lead to a widespread crackdown on rogue landlords.
For example, Croydon Council, whose controversial licensing scheme had collected an estimated £6million as of last year, only made a single prosecution in the whole of 2017, according to local reports.
In many other publicized cases, prosecutions tended to result from a failure to hold the correct licence rather than a breach of the housing act – which in no way proves that the landlords were not providing adequate housing to their tenants.
For example, as of 2016 Thanet District Council had made 26 successful prosecutions against landlords, of which only three were for breaches of the housing act, while 23 were for failing to obtain a selective licence.
NLA’s Chris Norris said: ‘If selective licensing schemes are used appropriately and in a targeted fashion, they can be an effective tool for councils to improve housing standards.
‘However, they need to be implemented properly, fully resourced, and enforced.’
Shelter’s Polly Neate agreed: ‘We know when councils are able to take full advantage of the powers available, including licensing, they can make a big difference.
‘But often, they simply don’t have the resources to use all of their policing powers effectively.
‘With the private rental market expanding, the government must act by giving councils the proper funds needed to get the job done.’
HOW HAS BUY-TO-LET CHANGED IN THE PAST TWO YEARS?
Former Chancellor George Osborne first announced a tax raid on landlords in 2015, stating the move was designed to support home ownership amid claims that landlords were scooping up properties and making it harder for hopeful first-time buyers to compete.
Intending to put a stop to this, the Government slapped a 3 per cent surcharge on stamp duty payable on new buy-to-let purchases from April 2016. This trebled the tax bill compared to residential property in some cases.
A further change arrived in April last year, as landlords began to lose their tax relief under a rule known as Section 24, which also forces them to pay tax on their rental income rather than just on their profit after mortgage costs.
Furthermore, the Bank of England also clamped down on mortgage lenders, forcing them to require landlords to earn a much higher ratio of rental income compared to their mortgage payments.
In October last year, further rules were brought in for landlords with four or more mortgaged properties to ensure their debt levels are not too high.