As I write this, the Chancellor of the Exchequer has gone back on his mini budget plan to abolish the 45p income tax rate for people earning over £150,000 a year. The policy, which saw the pound plummet, was unsurprisingly criticised as unfair at a time of rising living costs.
From mini budget to market turmoil and then this latest U-turn, it’s been a busy couple of weeks in politics. And of course, uncertain political times create even more uncertainty in an already volatile economy, making decisions much harder for anyone in business. And that includes landlords.
Of course, we hear a lot about the plight of tenants and how landlords are ‘cashing in’ on the cost of living crisis, with the likes of Generation Rent and Shelter criticising landlords for increasing rents in line with market value, seemingly oblivious to whether their costs are also increasing.
But why should the private rented sector be different to any other business category? Landlords are not charity workers - like any other business owner, as a bare minimum they need to make sure they remain solvent. They must carry out their due diligence, taking into account a tenant’s level of risk, in particular whether they can afford to pay the rent. Landlords’ costs are not immune from rampant inflation and soaring energy bills, as well as rising mortgage rates.
In recent weeks, I’ve been doing more public speaking than ever, talking with landlords on the road. While the media focuses overwhelmingly on the impact of the current situation on tenants, I’ve been asking landlords how the turmoil is affecting them, and whether they are increasing rents. Here is my feedback.
It is true that some landlords can absorb the extra costs we are all facing, in the short term at least - particularly those with no mortgage. I speak to landlords in this position, who know that reliable tenants are worth more than an increase in rent.
But equally there are plenty of landlords I speak to who can’t absorb higher mortgage repayments, rising maintenance costs and the increasingly punitive tax obligations involved in running a rental business, and have no choice but to pass some of these costs onto their tenants.
Unsurprisingly, many of these landlords are selling up. For some, even if they were to increase rents, the costs of staying are simply unsustainable. At Landlord Action, we’re finding that many landlords are using a Section 21 notice for the first time, getting out before reforms kick in. Our recent survey highlighted that 26% of landlords serving a Section 21 notice in the last 12 months did so because they are looking to sell up. This is having a devastating financial impact on tenants, who are seeing rents increase to record levels as demand outstrips supply - according to research referred to in the recent Lettings Industry Council Report, around 59% per cent of rental properties sold cease to be rented.
I did two talks last week – one in Leicester to 120 landlords where, when I asked who had put their rents up recently, about 20 hands shot up. In Cardiff a few days later, there were only a few hands raised in response to the same question. Not all landlords are putting rents up, but feedback on the ground is that rents are rising. This is backed up by Goodlord’s latest index, which showed September as seeing the highest average rental costs ever recorded.
In its latest report, the English Housing Survey said that 31% of a tenant’s wage goes towards paying the rent, compared to 18% for owner occupiers and 27% for social tenants. My view is that this 31% will increase, putting more strain on tenants’ household budgeting. The cost of living crisis has not kicked in properly yet, and rate rises will impact further on energy bills as we move into winter.
For existing tenants, any rent increases will be a strain as wages lag behind growth. But the reality is that a lot of these tenants are stuck with the devil they know – alternative rentals are likely to be even more expensive, not to mention hard to come by with such fierce competition for fewer properties, which is resulting in ‘rental bidding wars’.
Because historically many landlords did not put rents up in line with inflation, lots of the landlords I speak to tell me that their existing tenants are accepting that they will have to start paying higher rents. Not increasing rents except between tenancies used to work, but tenants nowadays are not moving as often - the average tenancy is now four years and two months, according to the English Housing survey.
Of course, if you have good tenants and can take the hit, you might prefer to keep increases to a minimum and look to raise your rents to market rates when your tenants leave. But absorbing spiralling mortgage rates while looking forward to better times ahead is not an option open to everyone - many landlords have no choice but to raise rents if they are to remain solvent, let alone make a profit.
Few landlords relish raising rents, especially those with reliable long term tenants who they know can ill-afford an increase. But with both tenants and landlords currently facing a cost of living squeeze, landlords need to understand that they are running a business. As tenant demand goes through the roof, increasing rental yields through rent rises is both justified and inevitable. I would also urge any landlords recruiting new tenants of the importance of pre-referencing and pre-qualifying to pick your best tenant applicants, stress testing their wage in accordance with the rent.
One thing is for sure, landlords staying in the market will, more than ever, need to be resolute, adaptable and resilient.
* Paul Shamplina is founder of Landlord Action, Chief Commercial Officer at Hamilton Fraser, and is on Channel 5's "Nightmare Tenants, Slum Landlords” *
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Owner occupiers spend a lot of money on maintenance and upgrades ! Not just the mortgage and council tax.
Don't forget stamp duty, legal and estate agent fees.
Any homeowners coming off their current mortgage fix are going to experience increases far greater than the vast majority of tenants will.
If property values drop they may not have many options if their LTV doesn't stack. Remember negative equity and mortgage prisoners?
Tenants have far more options and financial assistance available to them than homeowners, so perhaps they should do everything they can to encourage their landlord not to sell. Their next landlord is likely to expect far higher rent than their current one needs to stick with a good tenant.
Paul make a number of good points I’ll give him that although I have been known to disagree with him on the circuit. Better the Devil you know for sure people stay 4 years 2 months is it. Our Rents are well below market Rents so they can go to the Devil that they don’t know and pay far higher Rents that’s why they are staying longer. All my Rents are so much below Market value which is why a Rent freeze is so unfair, we have supported Tenants through thick & thin even reduced Rents in the Pandemic that we never got back up. The guys that increased rents at every opportunity are now on the pigs back, the Rent Freeze will guarantee them top dollar while we will be stuck there on low Rents do anyone think this is fair. a nice thank you isn’t it for being a good landlord.
Michael- But that was your choice to sell an asset for less than its value, not a criticism at all, I have my rents below, but we then have to take what comes. I will now start to get mine higher, we all need to.
So most of the problems in Private Rented Sector were deliberately caused by introducing Section 24 and removal of Section 21 causing thousands of landlords to get out. The available remaining stock must reduced obviously driving up prices, do you not get that, interfering with things you know nothing about.
Due to the then government policy, back in the 1970s almost every street in any UK city or town had high percentage of occupiers who were sitting tenants with the privilege of frozen rents and ability to pass on the tenancy to their children after death. Many of those tenants or their children went on to buy the property at a knock down price and so the only loser was the landlord. Regardless how anyone dresses up the removal of Section 21 which will have to be closely followed by a rent control/freeze it can and will only end in tears for landlords.
So we buy the property take all the risks put in our efforts our own finance to acquire the property then they take it from us very good, why not confiscate new Flats from Developers as well that would good too, when did the Russian take over.
When did it become such a terrible thing that 31% of a tenants wage goes on rent. Sure, as a single person who had a mortgage, I had over 60% going out on my mortgage, not ideal, but I managed to just pay my bills and food at the end of the month. Seems maybe other things sadly now come far higher up the list of priorities, as I find within some of my own family at times.
I don’t get this at all. The average wage in the South East is £33k my Tenants generally pay £400. per month or less in a shared house with their own room with 2 bath rooms large kitchen and living room. So say £5k max for the year how could that equate to 31% of £33k each, are you suggesting I should be changing them £800. pm each.
I doubt that they look at HMO's when they do this calculation.
But what Kathryn said was spot on, when I bought my first house back in the 80's all my wages went on the mortgage as the rates increased, i think I had a mortgage rate of 15.6% in the third year of ownership. We lived off my then wife's wages and lived a very simple life for a couple of years until the rates came down.
Simon I take it on the chin not that it matters to me if I am a landlord or not I have done everything complied with everything still under attack and abused for providing top quality affordable
housing. Without Section 21 it’s
not a Business I am probably better off out of it. I made my money initially from hard work and not from Renting, the ones that left got it right not putting up with those little Dictators taking control of our acids. 44 years a landlord.
Wow, how time flies. Never thought about it before, but I became a Landlord in 1992, so that's 30 years for me.
And yes time for a massive review, selling 2 houses very soon, hopefully one going on the market week after next and another at a Clive Emson auction on 2nd November.
Unfortunately need to evict a tenant, currently almost £5,000 in arrears. Been advised to use a section 21. They have now received it and had a very nasty phone call from them today.
Joy's of being a Landlord!
As more and more private Landlord's exit the market what will Generation Rent and Shelter do next!!
If they're £5k in arrears then why would you feel guilty about evicting them ?
Andy - They will blame us even more 😂
I seen a very young guy that came to a landlords meeting all glammed up with his Mediterranean tach so full of himself saying he was from the Department, the Bridge Hotel was the venue exactly what he was saying is what’s happening now, you can’t get them out unless you or your family wants to live there, he said we are writing it up at the moment, imagine that it’s Freehold Private Property none of his business how dare he I was a landlord before he was pupped, making rules for us and taking control of our acids no wonder LL’s are, getting out, we are going back to Draconian times. That could have been 5/7 years ago Anthony Gould was there that night too, so now you know the kind of people behind it. Paul Shamplina have you lost control of your senses your Article said you were getting common ground with Shelter who are they the cat’s mother it’s not their property have Charity Status and are not Elected Representatives, come to think of it who are you now that you have sold your soul to another Organisation.
Ok let me see which Rents are too low
W5 5RJ 5 bed detached £2’200 next door 3 bed Town Ho’ £3’900 so will we call it £1’000.
Flat same area one bed £920. + £200. easy
W3 8AH 5 bed Det’ £2’200, +
£700.
W5 IUA £1’500, + £650
HA2 Harrow £900, + £250
W3 8AH 2 bed larger liv’ and
garden £1’200, + £250
W3 first FL 3 bed large liv’and garden. £1’300, +£350.
W5 1ED £1850, 5 bed to include loft + £450 no increase 7 years.
HA0 Wembley modern house 100ft garden £1500, same price 12 years, + £600.
W5 1DY house £1500, + £300 same price 20 years, W5
W5 house £1400, + £150
W5 large house £1750 + £250
HRN Town house 3
Storey £1550, + £400.
UB6, 4 bed house £1500. + £500,
One bed Flat £900, + £200. All properties at licensed and compliant. Add the additional per month all, x 12 = £75’000 per year too low, no exaggeration at all, so our Rents should be frozen, who is in charge.
Michael - so many points there.
1 - you've just allowed all of us to check out several of your houses on Google maps.
2 - the word is assets not acids.
3 - if you increased your rents by £75000 you would pay £30000 of it in extra tax (unless you used some of it for tarting up your properties).
4 - rent is a private arrangement between landlord and tenant that both parties should be reasonably comfortable with. There's market rent, LHA rent or some other figure. There's rent for long term proven good tenants and rent for unknown new tenants. As far as I'm concerned for anything that is legally compliant and in a convenient location LHA is the absolute minimum unless the tenant can provide added value. (One of mine is a builder with mental health issues and I do have a slightly different basis with him that suits both of us. He does anything he wants to his little palace and invoices me when he feels like it. I charge below LHA rent with a £10 a month increase every June).
5 - For any tenant on a low income with a UC entitlement, charging below LHA doesn't do them any favours. Increasing the rent to LHA level wouldn't cost them a penny. Increasing it to bottom end of market rent also wouldn't cost them much as Discretionary Housing payments would make up most of the shortfall.
6 - if your tenants are self funding they will have had pay rises in the time they have been with you.
7 - if you're happy with continuing with the way you have always done then that's fine. If the constant changes to the whole landlord scene is making you unhappy with your business model adapt it to the new parameters.
8 - would your tenants prefer to stay in their current homes with their current landlord or would they prefer you to get so disillusioned you decide to sell up and evict them?
Hi Jo, it doesn’t bother me who checks what my Rents are very reasonable and none of them would find similar for to money, so why tar us with one brush and talk about enforced Rent Freeze for low Rent and none of their business, yes I know that I spelled assets wrong but least of my worries if people don’t know what I meant they are worse than me, bearing in mind I am doing it on little HE, mind you its so toxic acid might be a better word, thanks for pointing it out, I finished School over 60 years ago. For £75’000. It would be equivalent to owing and getting Renting income for at least another 3 houses and its sitting on my lap.
I don’t know anything about Housing Allowance or want to know they are all scroungers.
I can’t believe so little being said about removing S21 the very foundation or Private Letting I suppose you don’t know the difference. Having been a Landlord since 1978 and fought for 10 years to get the 1988 Act / Section 21 brought in, without which none of you would have been a landlord, I thank Sir George Young for his
help in tho regard, you walked in with your hands hanging and got it on a plate, now where is your back bone and protest against its removal.landlords are not represented only LL Associations with 100k members looking after their own interest. Jo you have the Administrative & Academic Skills to start one surely out of 2.5 m Landlords you could get a million signed up straight away say for £20. small change, no matter how tight they are, with £20m we could put a stop to the nonsense.
Agree with you 100% about the removal of Section 21. Very well done for voicing your opposition to that so well always, Michael.
Jo, you say Rent is a Private Arrangement between landlord and Tenant, can you please convey this to the
Morons coming between landlord & Tenants forcing in a rent freeze. What happened to the private arrangement.
Well said Michael. There are some very savvy people on this site and I think we could do a good job of representing ourselves. It would be good if someone would take this on, I agree that the Landlord Associations seem toothless to me. It would be good to have an organisation just for private Landlord's to give ourselves a voice.
I do write often to my MP and in fairness to her she does pass on my comments to the relevant departments. More voices need to be heard.
Michael - your rents are incredibly reasonable. With all the extra costs we have faced over the last few years with licensing and extra safety checks we have to pay for maybe they are too reasonable? Especially as the cost of the licensing and safety checks obviously upset you.
It doesn't matter how you feel about LHA. It exists and chances are some of your tenants receive it as part of a Universal Credit top up. You wouldn't necessarily know as landlords no longer have to fill in claim forms and the benefit is usually paid direct to the tenant. Some UC is paid to families earning over £50000. It's not like the old benefit system. The unemployed and low income workers are all lumped in together and all receive UC. The LHA figure is useful to know so you have some kind of base line.
I understand the concerns about Section 21 but as long as Section 8 is beefed up and effective I can't see that it's going to be a huge issue for the majority of landlords. How many of us currently evict for any reason other than rent arrears, ASB, wanting to sell or for us or a family member to move into the property? The level of proof of ASB is the most concerning bit. Obviously it's nice to know we could regain our property just because we feel like it but in reality how many of us have ever evicted someone for no real reason?
I left school at 16 and there is nothing special about my admin or academic skills. I read a lot of housing related or benefit stuff and ask difficult questions but that's pretty much it.
Jo
Section 8 isn't being beefed up and the media are full of monstering landlords. There was a woman in Slough prosecuted by Reading council as a rogue landlord, very odd, sounded more like a prison with padlocks on the bedroom door !
Jo, it’s not regain possession of our property just because we feel like it.
Its because we own it otherwise there is no ownership, if they want indefinite Security of Tenure buy your own I don’t supply it.
Incidentally Lis Truss was right to cut the 45% rate and should have stuck to it, 45% tax is a complete stopper for the economy when it reaches that everything stops, its ok for all those braying for removal they won’t be paying it.
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