The Realities of Limiting Rent in Advance

/ Maplewood Property & Investments Ltd/

Last week, MPs approved a new one-month limit on advance rent payments in England as the Renters' Rights Bill moves closer to becoming law. Whilst headlines proclaimed "Landlords face ban on ‘outrageous’ upfront charges”, the reality is that rent paid in advance is often the only way to provide landlords with security where tenants fail to meet affordability criteria.

This measure in the Bill aims to address unfair practices but has sparked concern among landlords and those aware of the complexities of the rental market, particularly in cities like London. A one-size-fits-all approach across the country may not work for the diverse circumstances of tenants and landlords alike.

Scenarios Where Rent in Advance Is Commonly Required

Case 1: An international student coming to study in the UK

  • International students are typically not permitted to work whilst studying, leaving landlords without reassurance of regular UK income during the tenancy

  • Referencing companies may need to verify overseas financial resources, similar to student visa requirements, which could involve lengthy processes and delays

  • Even with verified checks on overseas resources, non-UK guarantors provide limited security, as pursuing financial compensation abroad is incredibly difficult

  • Regular rent payments from parents of international students can, despite best intentions, incur delays in the transaction process and bank fees each time

Case 2: A self-employed person

  • Income for self-employed or freelance individuals is often irregular and can be seasonal, making affordability assessments challenging

  • New businesses or start-ups may lack sufficient financial history to show a regular income and give assurance to the landlord

  • Some self-employed individuals reinvest profits or take dividends, which can obscure their ability to meet rent obligations

Case 3: A working professional between jobs or moving to the UK to start a job

  • Professionals in transition who move first and find work second may face income gaps, without being able to show an offer of employment

  • Probationary periods in employment contracts and zero-hours contracts don’t guarantee long-term income stability

  • Delays in start dates or payroll systems can result in late rent payments. If relocating internationally, there can be delays in setting up bank accounts

  • Proof of savings would be required to cover living costs for the duration of the move and until the new employment contract begins, which is often unknown.

Implications for Landlords

For scenarios such as these, the restrictions on rent in advance could make it harder to mitigate risks associated with non-payment of rent. This is particularly concerning for landlords when the court system for rectifying tenancy breaches is experiencing delays.

When a tenant does not make their rent payments, a landlords’ ability to meet their own financial obligations can be jeopardised. According to recent data, anywhere from 50-75% of landlords have a buy-to-let mortgage and many rely on the rental income to cover their costs.

One solution is for landlords to pay for a rent guarantee and/or legal protection insurance policy against the tenancy, but these are often only available when a tenant can pass regular referencing checks and specialist providers may be required.

Housing Minister, Matthew Pennycook, has stated that the legislation aims to prevent tenants who can afford monthly rent from being required to pay large sums upfront. However, in our experience tenants can also benefit from these advance payments – even securing more favourable rental terms in some cases.

Balancing Tenant Protection and Landlord Practice

The Renters' Rights Bill seeks to address inequalities in the private rental sector, however it is essential to consider the unintended consequences on landlords striving to maintain fair and sustainable practices. Whilst the Bill continues to be refined, we look forward to practical implementation of the new legislation to avoid disrupting housing access for important sections of the rental market such as international students, self-employed individuals and relocating professionals.

Landlords and tenants alike will need to continue to adapt to changes made and stay informed of the legislation. For more updates, subscribe to our newsletter or contact us for advice tailored to your situation.