To consider distancing myself from a friend over her views on renting and benefits?

[TheGentlePoet]

I’ve had a conversation with a friend that’s left me a bit uncomfortable and I’m not sure if I’m overreacting.

She’s a landlord and was saying that with the changes to renter rules and the abolition of Section 21, she’s planning to sell up and “claim benefits as it’s the only way forward.” It just didn’t sit right with me - the tone of it, more than anything and it’s made me question our values a bit.

I’m now wondering whether I’m being unreasonable to consider distancing myself over this or whether it’s fair to feel put off by it.

AIBU?

Lots of landlords have interest only BTL mortgages so there won't necessarily be a huge amount of money made from disposal of her assets.

They're not, though. One is dependent upon the good will and absence of histrionic responses to perceived unfairness, whilst the other has an independent income and a significant asset or assets that can be liquidated at any point they feel particularly piqued about receiving insufficient admiration or the potential for the people responsible for the income they receive acquiring additional legal protections.

Exactly. There could be no profit at all. And if she has no savings and no income, she'll be as entitled to benefits as the next person.

It’s a fair point but doesn’t change the conclusion drastically.

As an annuity (ie a policy terminating on death, rather than a BTL), the equivalent value of the benefits is about:

£650k for a 25 year old
£500k for a 35 year old
£250k for a 65 year old

The two first ones are a bit theoretical as annuities aren’t really sold for young people.

But the point remains the same: it’s a lot of money. I think we should be glad that we live in a society that can and does do this. But the “landlords don’t know how lucky they have it” misses that if we are reducing things to numbers there are some pretty big numbers in the benefits-claimant’s column too.

Wholly disagree but she may not have any profit on the property so no tax and no lump sum. Is it that easy to just not work and claim benefits ?
I know there are people who play the system.
Before anyone accuses me of benefit bashing I know several people who do this. Not friends btw.

Yes it’s true that the benefits claimant is dependent on policies and politics, though the same is true of a BTL owner (who also has general market risk).

I think the issue is that you’re converting a safety net income into an annuity style capital value but that still doesn’t make the two situations comparable in economic structure.

Benefits are a non accumulating transfer designed to meet ongoing need. There is no ownership, no residual asset and no wealth build up (even if you express the stream as a discounted capital value).

A buy-to-let portfolio is fundamentally different: it is leveraged capital (with tenants servicing debt) and it converts into fully owned, transferable assets over time. That asset accumulation is the key difference the annuity framing doesn’t capture.

So yes, the present value of payments can look large on paper but that’s not the same as saying the recipient is in a similar position to someone building capital assets worth hundreds of thousands over time.

In fact, a significant portion of housing benefit ends up flowing directly to landlords as rent - which in many cases services the mortgage on those buy to let properties.

In one sense of course the two situations are different. The main one being that someone on benefits only has it while they are eligible. So I’m not trying to hide that.

In terms of the equivalent value though, I think it’s instructive. I switched to an annuity example because that strips out the issue around residual value, leverage, etc (which also carries risk that isn’t there with benefits, eg negative equity, and also the work that BTL involves).

The fact remains that the capital value of benefits is substantial, which I think is relevant if comparing how “lucky” benefits claimants or landlords should feel.

I guess I’m a bit of an old patrician Tory on this point. I think those with capital should be thankful they have it, realise how lucky they are compared to most, and generally not resent those who they support (on the “there but the grace of god go I”principle). And I think those who rely on benefits should be thankful they have others to support them, and realise how lucky they have it compared to most of time and most of the world (on the same principle). I’m sure that will make me unpopular with all sides!