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A short, sharp shock from short lets?

We’re all talking about second home stamp duty, changes to tax relief and the Prudential Regulation Authority’s suggestion that banks should be stricter when lending to landlords but a new change with the potential to further knock the lettings market has just slipped under the radar.

On the 6th April 2016 the tax-free threshold linked to the Government’s Rent a Room Scheme virtually doubled overnight. Homeowners can now earn up to £7,500 per year by renting out a room in their property, without having to pay a penny of tax.

Two crucial things are on the rise in lettings – rents and tenants struggling with debt. Figures released in April by the Office for National Statistics revealed that UK tenants paid 2.6% more for rent in February 2016 than they did a year previously.

At the same time charity StepChange announced that the number of renters in contact with difficulty paying off debt in the four years to 2015 more than doubled.

So why should we be worried? Given the above, there will be a band of tenants looking for a cheaper lettings alternative.

Renting a room is usually more cost effective than renting a whole property. It’s possible that long-term tenants will downgrade and look at house shares, with more property owners deciding to rent out rooms to earn some extra income (sidestepping the punishing tax rules applicable to ‘career’ landlords and potentially earning them more in returns).

The other cause for concern is the lack of regulation of short-term lets of 90 day or less. How many lets exceed three months? Who’s keeping tabs?

Interlinked with the new Rent a Room tax allowance is the rise of Airbnb and similar copycat set ups. The idea that you rent out your property for a week or two to tourists while you go on your own holiday has been somewhat undermined by more professional lettings activity.

In January 2015, the British Hospitality Association told MPs that 40% of Airbnb properties in London were run by professional landlords, who are using the website to “avoid taxes”, among other things.

On further digging, I came across an article that exposed a growing culture of professional Airbnb landlords – with one outfit controlling more than 30 Airbnb properties in Shoreditch alone.

Such is the virulent popularity of Airbnb that offshoot businesses are emerging, with property companies like Hostmaker and Airsorted making the management of multiple Airbnb properties more viable.

There are rules, however, that should stop tourist-led short lets encroaching on the private rental sector but one questions how they are enforced.

The Government’s Deregulation Bill stipulates that shorts lets on an Airbnb basis should be for 90 days or less but there’s strong suspicion this rule is being flouted, along with the condition that the let room should be in your only or main property (Inside Airbnb's figures, however, show 10,000 of Airbnb listings in London are from hosts with more than one property on the site).

There’s also the issue of subletting. A ‘resident’ landlord does not have to be the home owner. It’s perfect feasible for a tenant to sub let a room in a property they rent. Whether they get clearance from the landlord is another matter.

Likewise, some mortgage lenders would not agree to a homeowner renting out a room but how well this is followed up remains unproven.

So just when you thought the buy-to-let sector couldn’t come under any further attack, the industry has another reason to look over its shoulder.

*Simon Duce is managing director of the ARPM Group, which provides national outsourced lettings support 

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