Landlords: Good guys in a bad situation
Most people think being a landlord is easy as pie. Buy a property, find a tenant, then put your feet up and let the wonga roll in. But life for landlords isn't that simple, especially given the current state of the world.
Many people think that being a landlord is a cinch: you simply buy a property, find a tenant, put your feet up and watch the wonga roll in. But life, as we all know, isn’t that simple - especially when the country’s going through a cost of living crisis and inflation is biting hard. Money for old rope? The truth is that many landlords are on the ropes.
Landlords will tell you that life simply isn’t as sweet as it used to be. Yes, things might look peachy from the outside - rents are high, interest rates are rising and demand for rented accommodation is strong - but many of the financial incentives have been abolished and new legislation increasingly seems to be on the tenant’s side.
As a result, many landlords are struggling. Indeed, when the British Landlords Association asked whether it’s actually worth being a landlord earlier this year, their conclusion was a rather alarming, “no, not at the moment”. It’s possible to argue, therefore, that landlords are experiencing something of an existential crisis.
The traditional trials of a landlord
Landlords’ responsibilities have certainly increased over the years. Things like electrical testing, gas safety certificates, carbon monoxide detectors, and deposit protection schemes were all necessary to protect tenants, but they also increased the paperwork and the number of hoops that landlords have to jump through.
Landlords also have more to worry about than their critics realise: obtaining a suitable property that’s a good investment, preparing it for market, paying maintenance bills, funding repairs and refurbishments, not to mention fluctuating interest rates that could kick them in the bottom line.
And then there was the biggest worry of all, one that gives even the most laidback landlords the nervous willies: finding tenants that pay on time, look after the property, and respect the neighbours. Because if they don’t, evicting troublesome tenants can cause the mother of all migraines.
Which brings us nicely to… tenants’ rights
This year, the Renters Reform Bill heralded the biggest shake-up to the private rented sector (PRS) for three decades. And some of the changes sent a chill down landlords’ spines whilst giving would-be landlords colder feet than a frozen penguin.
Although not all the changes were bad for landlords per se, the rhetoric that accompanied the proposals seemed threatening. Michael Gove, for example, claimed that, “for too long private renters have been at the mercy of unscrupulous landlords” with the “threat of unfair and no-fault eviction orders hanging over them”. There was very little about irresponsible and unscrupulous tenants. Ahem.
The media also focused on the abolition of Section 21 (which makes it harder to evict tenants without good cause) and ran somewhat irresponsible headlines like ‘Landlords forced to rent to dole claimants’ to highlight how it would no longer be possible to ban tenants receiving benefits.
Meanwhile, plans for a nebulous ‘Property Portal’, where landlords would be forced to register each property, suggested that Big Brother would be watching them with both eyes in the future. None of these things, of course, improved landlords’ moods or made the idea of becoming a landlord particularly appealing.
Going green while staying in the black
Climate change has also been particularly bad news for landlords. In fact, they probably feel as much in the government’s net zero crosshairs as diesel cars. Why? Because they’ve been ordered to upgrade their properties to at least ECP level C by 2025 (for new tenancies), which is just less than two and a half years away. Yikes.
What will all this cost? Well, we can safely say that it won’t be cheap, especially as the UK’s housing stock is relatively old and drafty. Savills have estimated that it will cost over £17,000 to upgrade some homes from E to C. Meanwhile, the English National Housing Survey has predicted that it will cost £7,500 on average for landlords to meet the new standards.
Stumping up this cash won’t be easy. In fact, as we discussed in this month’s Residential Expert, existing landlords could well leave the sector as a result - either by choice or through necessity. And the financial disincentives don’t end there, either…
Pesky inflation
Although the current cost of living crisis is bad for everyone, landlords will have particularly squeaky bums now that inflation is soaring at 10%. After all, they can’t simply pass their increased costs to tenants because (a) rents are already at record levels, and (b) tenants are struggling with rampant inflation, too.
Consequently, contrary to reports that landlords are raking in the cash, the reality is quite different. After all, rent rises are usually less than the rate of inflation even when landlords feel able to introduce them; the result is therefore still a net loss. This is especially true for ‘bills included’ tenancies. Not even Maverick’s Boeing F/A 18F Super Hornet can keep up with the UK’s rising energy bills.
One wonders, therefore, whether becoming a landlord makes financial sense these days. The tax breaks that landlords once enjoyed have also been picked off: once upon a time, landlords could offset mortgage interest payments when calculating the tax they owed. Now all rental income earned is taxable. And we shouldn’t forget that stamp duty on second homes is higher, too.
Landlords - between a rock and a hard place
As a result, despite claims that “there’s no such thing as a good landlord” and headlines that call landlords parasites, we think it’s high time that everyone showed landlords some love. Yes, there are bad eggs out there, but the overwhelming majority of landlords act responsibly and ethically. Did you know, for example, that a whopping 75% of landlords have taken steps to support tenants during the cost of living crises, whilst as many as 1 in 12 have actually cut rents?
What’s more, we shouldn’t ignore the fact that we’re in the middle of a housing crisis, too. This means that we need more landlords, not fewer. Rents will climb even higher, and the PRS will be in an even bigger pickle, if the number of available rental properties continues to fall.
So next time you hear someone badmouthing landlords, make sure you set them straight. What’s more, if you meet a would-be landlord that’s wavering, argue that the Renters Reform Bill will actually bring some much-needed clarity to the sector: landlords can still use Section 8 to evict rogue tenants, the new Private Renters’ Ombudsman will settle disputes more quickly, and tenants will have to give two months’ notice before moving out in future (which should minimise costly void periods).
Therefore, although landlords might be in a bad situation right now, the news certainly isn’t all bad. And investors certainly won’t be one of the bad guys if they decide, however tentatively, to dip their toe in the water.
Expert comment by Mark Hayward, former CEO of Propertymark and JMI ambassador:
"The PRS is under pressure with low supply, competition for properties, and spiralling rents in many areas. Yet landlords are seeking to exit the sector because many feel demonised by the government due to taxation, plus move towards redress and national registration. It’s a shame because very few landlords are bad landlords; most hold just one or two properties and they provide an essential service to the private rented sector”.