The housing crisis and landlords

[MadgeMarple]

Hello, I am curious about the housing crisis and rents and not a little anxious as have young adults this will impact.

I was listening to R4 at lunch (you and yours maybe?) and the discussion was about the awful state of the rental market in England (I think Scotland has different, new laws and I'm not sure about Wales).

There was a landlord lamenting the rise in interest rates and the awfulness of mortgage tax relief being cut in 2015. If interest rates get to 6% lots of landlords will sell.
He lists a room in a shared occupancy house and 30 seconds later his phone is ringing with people enquiring about it. Within 24 hours 150 people have contacted him.
Someone, maybe from the Opposition, talked about how there just aren't enough homes now, due in part I think to successive changes/cuts in social housing.
And a bloke from some landlord association also talking about how everyone hates landlords etc.

Cut to a young man in London who is moving to a new house with his mates, rent has risen from £750 to £950. I don't even think it's a nice house (he said they had to drop their expectations). They had to audition for the place and the landlord had his pick of tenants (and can charge what he wants I assume). He will spend 40% of his income on rent.

What I don't understand is why there is a lack of rental stock? I understand landlords are selling up but I don't really get why. If places go so quickly, are not that great, and make a fortune why is this still a bar to being a landlord? Or are they just really greedy and want even more money and tax relief etc?

I read on the front of the Times today (too tight for a subscription) something about Truss considering scrapping the affordable housing quota imposed on developers which seems crazy given the lack of such homes. This is an idea from the levelling up minister to promote growth. Seems pointless doing everything to promote growth if people can't afford to live, or have anywhere to live.

I agree, but that isn't the fault of landlords but of the government which should be setting sustainable housing toward the top of their agenda, but haven't in 10 years . . .

Yes of course. Ultimately the responsibility lies with government. But private landlords as individuals are indisputably part of the problem.

Unfortunately they are answering a commercial need, but many have decided the profit now being too low along with the economic trading conditions for that business not being favourable, they are selling and investing elsewhere. It is often the case when interest rates rise, returns from other investment are better, so that's where the money goes.

If the landlording environment weren't so hostile I think more would stay, but it is hostile so this is what you have.

Blaming the government, economy whatever doesn't absolve individual landlords of their sins though does it. There is no "commercial need" for private landlords. They don't provide housing. The housing exists without them.
Private landlords are a symptom rather than a cause, but problematic none the less.

I rent to a family of 6 who house share across 3 generations. It was my former family home. The tenants work in the NHS. I have deliberately kept the rent at the same price they rented 3 years ago even though it rents have gone up by £250 in my area, Oxfordshire in that time. The increasing interest rates, stringent health and safety policies (which is fine but still costly) as well as agency increases means I am barely breaking even. Not to mention the tax I'm paying at 40%. Do I sell? Because the tenants have plainly said they can never leave as they can't afford to buy off me nor can they afford any other 4 bedroom house in a naice area where their kids can go to good schools. It is crazy. There isn't enough supply as whilst you think i am profiting, I am really not. I probably made £1000 profit and most of the money i pay from rent actually goes on the lenders interest. Not sure what the answer is other than build more houses.

I live in a HA flat, I feel very lucky. It's affordable and a secure tenancy. More social housing should be built for renters and I'd happily pay more tax to see that happen.

I'm an accidental landlord but like to think I'm a good one. We have all safety checks and I always act very quickly on any maintenance that needs doing.

Rent is £1800 a month which is about £300 below market now as I like ours tenan and know she can't afford more so we've not increased it.

We pay tax at 40% which leaves £1080 a month.

We spend about £2000 a year on insurance, safety checks and our licence (required where we are even for family homes).

Our mortgage is currently £505 interest only.

We currently make £409 a month assuming no big expenditure like a new boiler is needed.

When our fix ends assuming the rate is 6% (will likely be higher as BTL is normally higher than residential). This will increase our mortgage to £1350.

So we will make a loss of £436 a month.

We will either have to increase our tenant's rent by near 1/3rd just to get ourselves to zero.

So we will likely sell, but then where does our tenant and her kids go? She couldn't afford the extra rent, but we can't afford a loss. She won't be able to afford to rent elsewhere as taking into account likely rent rises as a result of interest rates she'd be looking at about £700 a month extra. She has no savings so couldn't buy. She could leave the area but her job, kids schools and her support network as a single mum is here.

It is genuinely giving me sleepless nights knowing I'll likely have to make her homeless if I can't afford to effectively pay out £436 a month to allow her to stay.

I'm a landlord and don't feel I need to be absolved of my sins!! - not in that area anyway

Of course we provide housing - some people do want/need rental properties and the government cannot possibly afford to buy up all the private properties - so someone has to own them

The whole system is crap - but until it is sorted out don't blame all landlords, we are not all awful. Mortgage rates and tax changes mean it is not a profitable business anymore.

Quite frankly if the government or a housing association wanted to buy my properties and promised to look after my tenants I would snap their hand off - it's not worth the hassle at all

But they can't afford to and I wouldn't trust them to either!

What do people mean when they say they are "accidental" landlords? You make a choice to sell a property or rent it out, surely.

@Muddledandbefuddled

i don’t under your thinking. You were getting more for a period than your mortgage and costs - if interest rates go up your mortgage goes up. That is standard. You say you have a loss but for a period you had a gain - where did that money go?

at the end of your mortgage you will have an asset that you can use as equity, collateral, a place to rent out or a place to live, a base for a business even.

You are always in a beneficial position. You don’t have a loss that you are forced to put on your tenant - you have a new cost that balanced out the very cheap run you have had. It is all your gain.

This twisted language is bizarre.

You decided to become a landlord, nothing accidental about it. Now you're not making money so your tenants are screwed.
You're not a "good landlord" for doing maintenance and safety checks. That's just bare minimum.
That rent is enormous. She's paid your mortgage and more for however long, now as soon as it doesn't work for you stuff her.
This is exactly why individuals shouldn't be landlords.

I've just sold my 1 bed flat I had when I met (now) DH and bought a house with him.

There is no money in having a single property, you need a portfolio of them to make money. 'Profit' margin is about 3% a year on the actual rental income- if I am lucky. That does not account for increase in value of the property, but mine has not gone up a huge amount.

Last year I made a huge loss, as the windows n boiler and hob all needed replacing. It would take me about 4 years to get that money back so I've given up. I don't have the savings to fork out on my family home and rental property for such things. I didn't increased the rent in line with the market really as I had good tenants and I just felt bad. It was better when the tax breaks were better on interest, but what with all the regulations it's just a money pit.

If individuals are not landlords, it means that it would probably be professional rental companies, council housing or Premier Inn.

Professional rental companies are not interested in buying up 3 bedroom suburban terraced houses. it is easier and better to build lots of build to rent city apartments. So people who are currently renting houses (that are mostly individually owned) will not have an alternative (other than buying it). However, the people who can afford to buy it would be people who already have equity or people who can save up a deposit. If you don't have a deposit, then i am afraid it is either council housing (little chance of getting it) or the local premier inn.

And we will rail against landlords and the government for hours on mumsnet, feeling smug.

So what is the answer? Just carry on charging tenants obscene amounts of rent that they can barely afford?

Which is why there needs to be more social housing.... ownership or social rent should be the default and private should exist solely for those who CHOOSE it because it suits them.
Obviously this is an issue that supercedes individuals. I personally have a moral objection to private landlords in the current climate. It is gambling on someone elses home. You won't convince me otherwise. But of course landlords alone are not the cause of the housing crisis.

The main problem people have with renting is that when it is a permanent state of affairs, it can be difficult with kids who are settled at school or for older people who crave some stability. You say obscene amounts of rent- well I can tell you that my mortgage would be over £1665 when interest rates are 6%( which they would be). Market rent is around £1700 . So actually renting is a pretty good deal as you don't have a whole lot of equity tied up in a property!

I think a lot of renters should count their lucky stars that they are renting; as if they could not afford to save and buy a property with the low interest rates of yesteryear, they probably cannot deal with the high mortgage payments that we would be facing.

The solution of course is state subsidized housing, including housing that is built by the state to be sold to middle income earners (singapore model) with the understanding that they cannot be rented out and can only be sold to middle income earners. This would ironically ensure that state housing would continue to be funded; currently council housing is seen as housing of last resort so most people don't believe in funding something they would never benefit from. Also council rent does not adequately cover the costs of maintaining those estates.

The private rental market is essential for short term renters such as students and people on short term contracts. Or people who are in between house moves. Thats why it must still exist. What is the real issue is people in insecure housing long term- however we cannot force the private market to provide a roof over people's heads; they are not running a charity so we cannot force them to be a charity. Ensuring people have safe and secure housing is a function of the government and if they are not doing that, they should be voted out. At the same time, not everyone is suited to buying properties on the private market; millions would be homeless when their mortgage payments double. These people had no business buying a house on the private market if they could not afford doubling mortgage payments. Sadly they were forced to (as well as told repeatedly by media and their friends and families) that you can't go wrong with property; and property only goes up. Unfortunately they will lose their homes and all the money they have invested in it. At least if you can't afford the rent, you can go and rent somewhere that is cheaper. If you can't afford your mortgage and are in negative equity, you would be in debt and lose all the money invested in your home.

This happened to me a few years ago. Single parent, son in year 11 and about to do GCSEs. We’d lived in the house for 11 years, it was our home. I calculated I paid more in rent in that time than the landlord paid for the house and had never once paid late. 2 weeks before Christmas a section 21 landed on the doormat giving us two months notice because the landlord wanted to sell. When we moved out (to another town, due to no available properties, so son had to get 2 buses to school rather than walk up the road), landlord tried everything he could to hang on to my deposit, even trying to charge me for wear and tear on 20+ year old carpets (he lost). A month later, he hadn’t sold it, he’d put back up to rent for £200 a month more. Landlord owns multiple properties, has never had to work, likes to race vintage cars in his spare time. Never did any repairs on the property and regularly left us with no heating or hot water (over Christmas one time) because he was too tight to pay for a plumber.

Now I rent from a lovely guy with just one rental property, allows pets, hasn’t done a house inspection in 5 years because I’m a grown up who can be trusted, and repairs are carried out instantly. I’m terrified he will have to sell and I’ll have to move and risk a horrible landlord again.

If interest rates settle at anything close to 6% rents will increase massively too....

Rents are linked more closely to income than buying a property. This is because people tend to pay for rents out of their earned income, but property is often purchased with a mixture of earned income, inheritance and also debt financed by low interest rates.

In the last decade or so, due to low interest rates, people have had an incentive to invest in property (esp their primary home) as it was basically tax free (other than stamp duty which is an one off). Did it make sense to stick 200k in a 0.02% interest rate ISA or pay more for a house in a desirable location( you get to enjoy your home and it is also an asset).

While rents might increase, there is a cap at which no one will be able to afford it and landlords would have to sell the property or leave it empty. and if they can't sell the property, they may be forced to accept a lower rent.

Usually used to refer to situations where people have a property and perhaps move In With a partner and can’t (or don’t) sell it, or inherit and can’t ( or don’t) sell it

as opposed to specifically buying property within an investment portfolio / as a business

a big reason why rent is so expensive now is because many higher earners are priced out of owning a property. Esp in the SE, whether you own a property has less to do with your earnings and more to do with (a) whether you have a partner, (b) whether you have an inheritance etc. my DH had colleagues on 100k who rented but I also know someone who earns so little that he doesn't even pay income tax and who is 33 years old and owns his house (in London) with zero mortgage (he proudly told me he has never paid rent, mortgage or stamp duty in his life. His house was funded solely from his parents downsizing. To him, my expenses are an alien concept; he cannot conceive of having to sustain our level of household income in order to survive because for him, his only expenses are bills, council tax and food.

I know so many people in London on good incomes who cannot afford to buy and therefore will pay £1k or more to rent a room in a good area. This does drive up the rental prices for families.

Good luck getting them out. They'll just refuse to move and the council/government will be on their side.

There are rumours the government are shelving getting rid of s21s. That's a start in the right direction for all.

No. The reason rents are so high is because landlords charge as much as they possibly can.
Yes plenty of people get help to buy, but very few have no mortgage or rent to pay. Those people are so insignificant in number...
We are in the SE, on a "good income" bought recently (moved to a cheaper area) because our landlord wanted to raise the rent beyond what we can afford. We are fortunate that we had that option.
I'm sorry but it's indefensible.
The town we moved out of has real problems staffing supermarkets and care homes for the wealthy residents because no one can afford to rent anywhere near.
Yes there is a ceiling, but I don't see any reason that the rental ceiling will be lower than mortgages. If interest rates, rents will go up and people will continue to pay because they don't have a choice.

What I don't understand is why there is a lack of rental stock?

There's not a lack of stock. There's a lack of stock in the right place of the right quality.

Three key demographic trends are to blame:
(1) AGING - people are getting older and are keeping their large homes, even though they are maybe only one person living there. The 'boomers' will die out over the next twenty years and that stock will be freed-up.
(2) SPLITTING - more families are splitting, there are more single parents, twice the families means twice the number of homes required.
(3) URBANISING - people are moving to larger centres away from rural or smaller centres. These urban centres do not have the densification / high-build planning rules in place to allow for building up. So supply gets constrained.