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14:52 PM, 4th November 2022, About A year ago 27
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Where to begin? With the media buzzwords? With various organisations calling for a rent cap in England? Or the real reason a rent freeze is coming which was revealed on Thursday (which I will come to)?
Leaving aside that there is a perfect storm brewing, is there really a private landlord anywhere in England who doesn’t believe that a rent freeze is on its way? And with it, a moratorium on evictions too.
Scotland led the way with an ill-thought-out scheme before finalising the legislation which was full of holes.
Wales tried to follow with Plaid Cymru saying that rents should be frozen this winter, and not people. That’s a clever turn of phrase and surprisingly, the Labour Party refused to impose a rent freeze saying that their Scottish friends are fearing that landlords will leave the sector – which will push rents up because there will be fewer homes to rent.
And then we come to England.
We’ve had all the usual groups stamping their feet demanding a rent freeze to help deal with the cost-of-living crisis. There’s never any mention of landlords struggling financially, it is always focused on the tenants.
That’s why I was taken by a report from Crisis, which I read on Property118 about the choice of housing for those on housing benefit.
The homeless charity says that just 11% of one-bedroom homes in England are affordable to those in receipt of HB. That’s down from 17% in April.
There’s no doubt that the gap between the actual cost of renting and housing benefit rates is an issue and, according to Crisis, has grown by more than 40% in just five months.
That means there are naturally fewer homes for people on housing benefit to choose from with the situation being compounded by the fact that lots of landlords (or their lender) are not interested in dealing with those on benefits.
So, having accepted that there is a growing issue, particularly in London, with people struggling to afford to pay rent, it’s worth noting that the government looks set to impose a rent cap on social housing from next April.
There’s been a consultation to see whether it should be set at 3%, 5% or 7%.
The councils and social housing landlords have flagged up the problems that will come with this, but the government seems intent on implementing it – they say it will protect the most vulnerable households in exceptional circumstances during the year ahead.
But there’s no doubt that if it’s good enough for social housing tenants, then it must be good enough for private rental sector tenants too?
And I can’t see the government waiting until April before the rent cap is brought in for social housing tenants – I think it will come in sooner. And it will be set at 0%.
I also think the government may well be persuaded to introduce a rent freeze in the PRS because this will play well for people on low incomes.
And, let’s face it, every landlord knows the Conservatives have not been a friend to us for many years.
We often see in the media various buzzwords like the cost-of-living crisis being splashed regularly when referring to escalating prices for food and energy and that people should prioritise these things rather than paying rent.
Well, I don’t believe they should. I think they should pay.
I mentioned at the beginning that there is a perfect storm brewing, and you need to focus on what I’m about to say by understanding that the government is now working on a timescale – and that timescale is dictated by the last date on which they can hold a General Election.
That means there are some issues they need to deal with and a few supertankers they need to turn around.
Having Michael Gove back in government – he’s certainly not a friend of landlords – means that there may be some unpalatable decisions being taken that will leave landlords out of pocket.
This brings me to a perfect storm and it’s one that will leave landlords well and truly drenched.
This came to me on Thursday when I read the Bank of England statement about why they were putting the base rate up. It’s no surprise that the base rate is now 3%.
The knock-on effect means that landlords will be paying more for a new mortgage – if they pass the ever-stricter stress testing being imposed.
That means rents will rise and they will probably increase substantially so this will become a political hot potato.
The government could put some cash into the situation to help pay rent, which has already been hinted at, but I don’t think that is what they will do.
That’s because the Bank of England statement makes clear that we are about to head into a prolonged period of recession which may see the number of unemployed people doubling and businesses going broke. This recession will end at, or near, when the next General Election must be held.
A simple solution, and one that will save the government billions of pounds, is to introduce a rent freeze in the New Year for all tenants in England, including those in social housing.
If this happens, then it is the starting gun for an election campaign and landlords will be paying the heaviest of prices for it.
Expect the rent freeze to last at least six months, if not longer.
In addition, there’s bound to be a moratorium on evictions which will cause chaos in the PRS because lots of tenants will realise that they don’t have to pay rent and it could be years (I’m not joking here) before a landlord gets possession of their property.
As I said, it’s a perfect storm of rising interest rates and mortgages, fewer homes to rent and a recession that landlords can do little to avoid and all we can do is hope the government doesn’t decide that a rent freeze will be the simplest of solutions to a very tricky housing problem.
If you see me in this storm – it isn’t the rain or floodwater that I’m covered in. It’s the tears of fed-up landlords wondering what they did wrong to have such opprobrium poured over them.
Until next time,
The Landlord Crusader
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Action not words needed from landlords
Blueskies
11:55 AM, 4th November 2022, About A year ago
Very well written article, plenty of food for thought.... and much to be pessimistic about I think... I agree with the author's sentiments.. I am selling almost all my rental properties at the end of 2 year fixed deals I have just secured, and I can't wait to get out. It's been total misery. Section 24 has almost bankrupted me and now interest rate rises and all the other worries mentioned in this article have finished me... good luck everyone.
NewYorkie
12:25 PM, 4th November 2022, About A year ago
After 20+ [largely enjoyable] years in the PRS, I have reached the point where I've had enough and now have one property left to sell. Retirement without thinking about property, tenants, mortgages, regulation, tax, governments... is where I am.
I sold one last Summer, after a £20k arrears and eviction nightmare, which wiped out 10 years of profit for that property. I hated the property and everything associated with it, and needed to just get rid. But I could see the direction of travel from whichever government would be in power, and it set the seal on my plans. This article simply reaffirms my decision.
But, hey! I mustn't complain. I've been a greedy, bad landlord, and made a profit from living, letting, and selling in London. Yes, I know I took some massive risks with my own money, which could have bankrupted me but for some luck along the way, but let's not allow such inconvenient truths to spoil the exploited renters narrative.
My next step must be to issue a S21 to my remaining tenant; a single mother who has never missed a payment in 4 years. Yes, I will feel bad, but I cannot face another nightmare like before. Whose health and welfare do I prioritise?
I wish you all luck.
Beaver
13:52 PM, 4th November 2022, About A year ago
Consider that you find as a consequence of the rent freeze, rising mortgage payments and the many other escalating costs that you are unable to continue as a small non-incorporated landlord and so you sell to a private corporate investor (the average number of properties per incorporated body 3.3 at present and it's going up apparently); in terms of ongoing running costs the corporate investor can presently deduct more of its ongoing costs than you can.
The corporate investor is likely to find it necessary to refurb. e.g. to comply with likely future EPC requirements, or mortgage company requirements given that finance companies are aware that it may be difficult in future to rent properties below band C. Of course it might be necessary to spend on the property before you sold it and much of that would be capex which would decrease the capital gain chargeable to CGT.
The corporate investor won't be bound by the old rent freeze. I.e. the rent freeze can only apply to the old landlord and not to the refurbished property belonging to the new investor with separate legal person.
Would forcing small landlords to sell by freezing the rent increase the number of properties held by incorporated bodies above where it is now at 3.3.? And won't this short-term knee jerk response have the effect of raising rents rather than reducing them?
Would it make more sense to allow small landlords to deduct their finance costs and all the costs of improving their EPC ratings from their revenues so that they don't actually have to raise the rent for long-term tenants, or to evict them? And would that make more sense from the point of view not just of their long-term tenants about to be made homeless, but also from the point of view of climate change?
Mike T
14:28 PM, 4th November 2022, About A year ago
Reply to the comment left by NewYorkie at 04/11/2022 - 12:25
Like NewYorkie we have been been renting properties for 19 years. We saw the writing on the walls back in 2015. We have had fairly good tenants, some being with us for 12 & 14 years with little by way of problems. However, seeing how the PRS was being continually bashed, by the likes of that so-called charity Shelter, we decided enough is enough. So we proceeded to sell off our small portfolio of 4 houses. The last was sold just a few months ago.
We are out of it all ! and just in time to be not effected by the now rising costs of any mortgage. No more worries, no sleepless nights or 'Income Tax' concerns.
We enjoyed the ride but it's just got too uncomfortable and extremely risky - as the recent situation proves. Good luck to all.
TheBiggerPicture
15:02 PM, 4th November 2022, About A year ago
Let's hope there isn't a temporary rent freeze.
Theres nothing so permanent as a temporary government program.
Beaver
15:59 PM, 4th November 2022, About A year ago
Reply to the comment left by TheBiggerPicture at 04/11/2022 - 15:02
After the recent Kwasi-budget I'm not really sure how long-term governments actually think. I think perhaps joining I'm a Celebrity Get Me out of Here (because you suspect you're going anyway) and pursuing alternative career paths like Michael Portillo or Ed Balls might be as long-term as their thinking gets. I think their thinking is more likely to be along the lines of "...will I have a job after the next election."
However, government can't impose a permanent rent freeze as such. They might temporarily be able to prevent an increase in rent to an existing tenancy. But once the situation becomes unsustainable, then like Mike T landlords will just get rid of their tenants because they won't have any choices left and they will need to cut their losses.
Any government that imposes a temporary rent freeze will be kicking the can down the road and the end result will be less housing and higher rents. They might delay the point at which as a landlord you can get your house back, but only briefly; in the end either you'll get your house back or your mortgage company will get it. And then it will be sold. And when it's sold to another (probably corporate) investor because the potential owner occupiers who might otherwise have bought it can't get a mortgage the rent charged by the new company for the new tenancy will be higher.
Or the government could allow you to offset your finance costs against your rents so you don't have to raise the rent, sell or otherwise get rid of your long-term tenants. Or at the very least they cuold allow you to deduct your finance costs if your property is band C or above so you had some incentive to improve the property for the tenants and the 'greater good' if you were presently D or below.
John Parkinson
16:39 PM, 4th November 2022, About A year ago
Reply to the comment left by Mike T at 04/11/2022 - 14:28
what to do will the money now? leave it to inflation?
Merlin
17:05 PM, 4th November 2022, About A year ago
Reply to the comment left by Beaver at 04/11/2022 - 15:59
Good points from Beaver - Its a dangerous game with imposing a rent freeze and has serious repercussions all round.
The Government are mainly responsible here and have been dodging these issues without any creative suggestions or incentives- you can only kick a dog so much!!
When you start imposing or placing restrictions on how a landlord operates, then expect a mass exodus as most had enough - totally stupidity and so one sided in welfare of tenants and landlords
Beaver
17:30 PM, 4th November 2022, About A year ago
Reply to the comment left by Merlin at 04/11/2022 - 17:05
The landlords may exit the market but the properties they sell don't....:-)
I suspect that is what the rise in corporate ownership is showing: My guess is that the properties just get swallowed up by larger investors who then just raise the rent to offset their increasing risk and also their finance companies increasing risk reflected in higher mortgage costs.
I can't see how forcing investors out benefits anybody if there is a shortage in supply.
There's nothing I can see that any government has done in the rental market in recent years that isn't inflationary. It's a 5 week deposit rather than 6. We're thinking about portable (!!?) deposits for tenants. You can't deduct your finance costs. We've given you a new EICR-blank-cheque-for-electricians system. You can't invoice the tenant for anything even if the damage is due to the tenant. Covid comes along and the tenant doesn't have to pay you and landlords get no compensation. And then finance costs go up. As a landlord there's nothing at all you can do but raise rents. *Or* sell to someone else who will raise the rent.
So the tax breaks were taken away and predictably that was inflationary. So where are the tax breaks encouraging good landlords and investment in renewables? Because without them all those standards that landlords have to meet so that the properties they partly own (and the finance companies who mostly own them if they are mortgaged at 50%+ LTV) all have to be met through increasing rents.
Frank Jennings
8:31 AM, 5th November 2022, About A year ago
I still cant see how Section 24 is legal, as it discriminates private landlords from incorporated landlords. In no other business is the income Tax taken before the deductions are made for investment expenditures. No other business could survive such crippling tax deductions! It is simply discriminatory.
Looking in to the possible long term effects of the govenments squeeze in the PRS and their current direction is interesting.
Once all the small landlords have left the PRS we will have lots of small property rental companies, and a few large ones. Well what will happen then? The Large ones will buy out all the small ones of course, thus we will be left with a few very large housing companies who will raise rents and will vet all applicants before they are accepted. A monopoly! Anyone who has had CCJ's or have had money problems in the past, or who have missed rent payments, or can't prove they can easily pay the higher rents, or anyone who can't supply good guarantors will not be considered. They will not be housed. There will be carnage.
One hope's that common sense will prevail, but with things the way they are, I have no faith in the govenment to see it. Get ready for
Mad Max!