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Government Beware - you're driving landlords out of the sector

Landlords are in danger of losing the narrative again.

With rental inflation hitting record levels, much of the noise we see in the media focuses on landlords taking advantage of tenants and forcing prices up. It’s a weary story that the landlord community has had to regularly endure. 

Aside from the fact that these figures relate to new tenancies only and that nearly half of landlords have said they have helped their tenants financially in the past 12 months, the headlines miss the real story – the rental stock crisis. 

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What we’re looking at here is simple supply and demand economics. If a product or service is in scarce supply, the price will go up. 

We need to focus on why there is such a shortage of rental stock available in the first place, which only looks set to get worse.  

Speaking to colleagues in the lettings industry, I hear frequent stories of tenants going through a beauty parade when trying to rent homes, attempting to get the edge over other prospective tenants by advertising their credentials. For me, that’s a sign of a dysfunctional market and tenants are paying the price.  

The stock shortage is being caused by two key reasons. Firstly, tenants are staying in their property for longer, so the liquidity of the rental market doesn’t exist to the same degree as pre-pandemic. 

Secondly – and more fundamentally – landlords have either been selling up or moving into the short-term lets market. Zoopla data shows that around one in 10 homes currently for sale have been let during the last three years. 

Additionally, the latest English Private Landlord Survey (EPLS) showed that 10 per cent of landlords plan to sell their property and exit the market over the next two years, up from 5% who replied to this question when asked in 2018.

The main driver behind the desire to leave? Legislation.

Over half of landlords, 55 per cent, said that the plethora of legislation was central to their decision to quit, with 53% citing upcoming legislative changes, such as changes to Section 21. 

Nearly 170 pieces of regulation govern the industry – some dating back to the 18th century - so you can understand the frustration. 

Landlords have been the political football for years now and we are now seeing the impact of the changes to Stamp Duty and tax relief playing out in the market. I have said many times that being a landlord is not easy; the tenant relationship is generally positive but many landlords have war stories about arrears, anti-social behaviour and damaged property. 

For many, the hassle is becoming too much to justify carrying on. Forthcoming changes to EPCs will only exacerbate this trend and send an increasing number to the exit door. 

My sense is that it is the smaller landlords who are leaving at this stage. The EPLS showed there are a huge number of ‘accidental’ landlords in the market; those who inherited property and found themselves with a home to rent after forming a new relationship. The house price inflation of the past two years has been an extra spur for some of those to sell-up. 

The danger for the housing market, PRS and – let’s be honest – the government is if the professional landlord decides enough is enough. Just under a fifth of landlords own nearly half of stock and any significant movement of these landlords towards downsizing their portfolios could be catastrophic. 

The signs are that this isn’t the case presently. A total of 35% of landlords who rent property as part of a company said they planned to buy more properties in the next two years compared to nine per cent of individual landlords or plan to do so.

But patience is wearing thin. Government needs to recognise the role these landlords play in providing a good quality home to millions and understand their importance to the housing market before it is too late. 

* Richard Rowntree is Managing Director for Mortgages, Paragon Bank *

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    At last an article that is fair and correct. I could read it without feeling my blood pressure rise.

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    We have always helped them no end while being continuously attacked and vilified by Government, Councils, Shelter, Generation Rent etc’ all smug sitting on the fence. I have a Seven Person licensed HMO in London let at £1550. pm. I would like to see Public Sector housing compete with this. I doubt if they could house Two persons for this and
    with all the advantages they have, rules exemption’s, financed by Public purse and no tax or license for them then they pick on us.

    Daniela Provvedi

    Hi Michael, just asking (and yes, this time I am being personal 😉), but why is your rent so low?
    My Landlord friend who has a flat above mine, in Central London, with an HMO of 3 people is charging well over £2,500 per month, to students.

     
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    No mention of immigration then,approx 1 million have turned up ? Where do they think they will go ? However apparently Prince Charles disapproves of sending illegal immigrants to Rwanda. His family have lots and lots of spare bedrooms.

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    Prince Charles is the fool of the family it's best to simply ignore him

     
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    There are too many different agendas at play with very limited joined up thinking.

    Why do lenders charge higher mortgage interest rates to medium size landlords than to small scale landlords? Up to 4 properties BTL mortgages are dirt cheap. Over 10 BTL mortgages and the choice of lenders is severely restricted and rates are sky high. Incorporation may have some tax advantages but the rates on limited company mortgages are still much higher than for small landlords. Expanding a portfolio is incredibly difficult if we're trying to keep to no more than 10 mortgages. Early repayment penalties makes consolidating borrowing very time consuming or expensive.

    EPCs are a nightmare. The default setting is for the report to say solid floor insulation is the number one improvement required. My local environmental health department casually mentioned that's the last thing they would expect a landlord to actually do as the environmental impact of removing and dumping tons of concrete would be huge. We need a pick and mix list of exactly how many points anything we do would give us. Some EPC assessors are now apologising for the nonsense on the reports and saying ignore that, all you really need is a new night storage heater or whatever instead of the £6K solid floor insulation and £4K gas central heating system recommended on the EPC. We don't even know yet what standard we are going to have to achieve or how the exemptions will work.

    The media have universally vilified landlords and accused us of denying FTBs the ability to buy a home. They have completely failed to acknowledge that we provide homes for people who are only wanting somewhere relatively short term - students, temporary or seasonal workers, people trying out an area before deciding where to buy. Or people who suddenly have an unexpected housing need when a relationship breaks down. We often buy big houses that FTBs wouldn't want or afford. Or properties that require extensive renovation. Without a ready supply of rental properties employers are going to face serious recruitment problems. It's already happening in tourist areas.

    Why do the media imply all tenants are poverty stricken benefit claimants? Many tenants have extremely good incomes, they just don't want to buy a house yet. Many will choose to wait until they've got their dream job and partner.

    Why does the government assume landlords can absorb hit after hit? Extra SDLT, extra CGT, extra income tax, loss of Child Benefit due to Section 24, eviction ban and rent payment holidays during pandemic, ludicrously low LHA rates, extra Council Tax during voids, licensing fees, more and more compulsory alarms and safety checks, etc.

    I'm one of the landlords who isn't planning to give up any time soon. I just hope the government wake up and realise the harm so many of their policies since 2016 have done and reverse at least some of them before there is an even bigger crisis.

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    Jo. So true and their agenda is to meddle & rune, drive us to the wall because its not theirs and nothing they do affects them. Landlords can’t get out because of the 28% c/gains then still not finished they’ll waiting at the Cemetery Gate for another 40% inheritance tax grab, not allowed to give it to your family because if you do that will mean it have to be sold to pay the tax. Then they are amazed that 25 million don’t have a Will forgetting the System don’t allow it be done.

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    Daniela. I suppose I would have to evict everyone and start again if I want more rent the current clientele haven’t got great jobs but they are ok really and keep the place clean and tidy which goes a long way. It just unfortunate the Council’s are driving up rents with unjustifiable Regulation’s & Licensing Schemes to cream off for themselves wholly. Then paying lip service about rent cap pretending to be Tenants friend when they know well a rent cap is a revenue cap, can’t see them cutting their tax take.

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    A very good article, I am one of those smaller landlords who is just pig sick of it all, I am on the cliff edge, if EPC C comes in then I am out.

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    • G W
    • 11 June 2022 21:49 PM

    The article is fair but all that I have read recently all miss another 'accidental' landlord and that is the retired person with savings who have bought over the last 5 years as interest rates were so low on their savings......I am aware of many who have now decided to sell as they getting Capital Growth as well from the last 2yrs. I am also a small landlord who is considering selling up with the scrapping of Section 21 and EPC changes.....

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    I was always into this game for the long haul, and have been, over 30 yrs so far, I don't want to sell anything, however with EPC C, rent controls, and a strong likelihood of a labour government coming it's looking more and more likely that selling might be the wise option, reluctantly.

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    Banks wakeing up to the fact that they could find their mortgage portfolios taken off them !

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    Andrew - A smart decision, those who survive upheavals do so by adapting to change, I too had the intention of long term ownership, but it would be financially incompetent to spend a fortune I would never get back, plus at my age I don’t need the stress.

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    Jo. Lenders can do what they like to you and are crooks anyway. I had a Mortgage on one some years ago but I didn’t fix the rate initially my fault so that cost me £5k extra I hate been tied to them, the follow on period I did fix the rate for 3 years to save me £2.5k but I wanted to get rid of it really so I was keeping an eye on end date. When it came close to end date I repaid it, next I received a Bill for £8’600. Penalty for breach of terms for paying too early / 2 weeks too early. I only paid to make sure it wouldn’t over run & incur more costs silly me it had to be on the day. They wouldn’t listen to reason, I had to involve Ombudsman before they relented. Then more nonsense their system wouldn’t allow correction, so they put the money back into my Account again and I had to re-transfer it
    back again on the exact day. My Bank couldn’t understand what was happening, well done the works Mortgage.

  • David Saunders

    Much as I agree with almost all the above comments, unless I'm missing something nobody seems to mention what was my main if not only reason for evicting my tenants despite neither ever missing a payment and always keeping the flats clean and tidy. That reason being the outlawing of section 21 which effectiveley converts all Assured SHORTHOLD Tenancies into Assured LIFETIME PLUS tenancies which will no doubt be swiftly followed by rent controls in order to prevent what the Government and the likes of Shelter consider to be unscrupulous landlords upping the rent in order to get the tenants to vacate. Hence landlords then having little or no chance of regaining vacant possession this side of hell freezing over as per 1970s/80s, resulting in minimum 50% drop in properties value.

  • Matthew Payne

    Whilst many of us have been prediciting this sword of Damocles had started falling a long time ago, its good to see the mainstream waking up to the issue, better late than never. However, stemming the flow of LL departures is simply the smaller half of the problem. The PRS peaked at about 4.6m in 2016, and has since shrunk by about 300,000 units depending on where you look. Now in those 6 years, the population has been increasing at a rate of 300,000+, mostly tenants, with the Brexit deadline seeing a signficant one off amnesty of a couple of million Europeans, HMG didnt even know were here.

    So to keep pace, the PRS needed to be 6.5m + units by now, let alone shrinking. Relenting on recent tax hikes is one thing, but HMG actually needs to be providing "too good to be true" tax incentives to LLs to get them queueing up to urgently buy more.

    Any then we have the MEES changes on the horizon....

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    Why are we as landlords not talking about the countries strategic need for flexible renting.
    So people can easily transfer to areas where there are jobs.
    Only private enterprise can adjust quickly enough to do this.
    So we need to be encouraged not hindered in our mission to provide these homes.

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    So guys, instead of moaning etc.
    Which believe me I get.
    Write, not email, your MP even if you think they are useless. They have to reply.
    Tell them of the strategic need for affordable local rental. Which is flexible to meet the neefs of a mobile workforce. And provide the support for the people that are doing this.

    I am afraid that just complaining about regulations and taxes will fall on deaf ears
    Use boris speak. Like strategic, flexible,short or no commuting.
    Builds local enterprise and regenerates underused accomodation. All for our workers returning to work in our local communities. And also spending their earnings in the local communities.
    Brexit should mean more opportunity.
    Not more hindrance.
    There I've said my bit.
    Bombard them with real mail.
    Plus you will receive a nice letter back with house of commons watermaked headed paper for your wall.
    Let's give it a try!

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    Done that - been regularly updating George Freeman - now he has a gov portfolio position he doesn't even bother with the trite little responses he used to send

     
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    As with Catherine I too have written to Mr Freeman, total waste of time, he and his like are not interested in the least, all they are interested in is their monthly pay cheque, as Mr Freeman has one of the safest tory seats in England why would he be bothered ?

     
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    100% right Terry, I totally agree with you, but I am not interested in getting a watermarked paper. What I am interested is in proper policies addressing the real issues which most politicians are not interested. PRS generates votes and its is highly emotional. Lets produce a letter to be sent to all politicians and be this letter be a public letter as well

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    Terry knott, have you just woke up you are now responding to an Article of 3 days ago and thanks for the amazing advice I have given 40 years writing to Members of Parliament and Ministries they do respond with the usual lip service but a complete waste of time. My current M.P in Brent has been re-elected 7 times and continuously since 1997 on the back of Benefit claimants, there seems to be more of those in Brent than tax payers. We have given up voting it’s pointless although we are required to register just to keep the returning Officer happy, maybe they can sell our names. What a waste of money putting those 12’ Portable Cabins obstructing 8’ road lanes when it’s not compulsory to vote people are too fed up to vote. I still have about 50 cream envelopes from the House of Commons, it just adds cost to their Stationery Dept. Private LL are now tied to the desk with paper work with no free time left & you want us to write even more. Sorry rant over.

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