Monday, 22 October 2012

Why Would Anyone Become A Landlord?

Why would anyone become a landlord/rentier? Why would they do that? Simple: letting out property as homes for other people to live in was traditionally, and increasingly seen as a certain, sure fire, cross-your-heart-hope-to-die, solid gold, clear cut, guaranteed route to financial security or even…WEALTH!

Rich! Rich you will be! Richer than Croesus, wealthier than your wildest, trippiest, dreams. Totally bling. For sure. Money, money, money!

Except, well…it’s not like that is it? Landlords who bought for, and are entering the private rental sector are doing so not just because they want to be rich…Rich! RICH! (etc…) They do so for security, as state pensions are disappointing, student fees are high and interest rates are low. Put your money in bricks in mortar went the mantra. And that’s exactly what they did.

Landlords do not enter the market to help people although they might choose to be supportive of tenants, but equally they might not. Few choose to be kind: I know this as one of the most common search terms used by new readers is ‘my tenants are scum.’ And recently: ‘need bouncers to evict my tenant.’ Nice.

Rentiers want to own something real, tangible and visible - to possess an object that is literally concrete, because shares are risky, and in some circumstances savers actually lose money. What else is there? Art? Antiques? Gold? Buy a B&B? (Well, you have to work at a B&B, which puts off many, and you can’t by law even be a homophobic bigot anymore.)

People buy property to rent as houses for ‘the future’ or to help their children. They buy up and then rent out property, not as a secure place for a fellow human being to occupy into their dotage, but a block of money to be wallowed in by the owner, a wedge of cash blighted and infested by pesky, flawed human tenants.

And landlords might still be tempted to buy a dovecot (what I call newbuilds) its value dropping by the minute, or purchase buildings outside of their area of knowledge, in a different town or a neighbourhood unknown to them, where wise people and most tenants fear to tread, no matter how ‘well-appointed, convenient for amenities and sensitively refurbished' the place might be.

Landlords sometimes inherit unsellable homes from dear departed relatives, and are forced to rent them out. Others might want to move themselves, but rent because they’ve sold their house and are stuck waiting to buy a new one.

The point is this: very few people actually choose to be, or set out determined to be landlords. Have you ever heard a rentier saying: ‘Ah - landlording – it’s in my blood! My mother’s father’s great-grandparents were landlords - it’s all I know.”

This causes all the problems. Few people want to be landlords, and are rarely prepared for the expense, time, annoyance and panic-stricken calls while on holiday about broken ballcocks (sorry Landgirl!) Few have proper landlord insurance, but many have prejudices, and think their former home is still their castle: often why it all goes so very, tragically, horribly wrong. And it’s usually the tenant who suffers.


Anonymous said...

Have you ever heard a rentier saying: ‘Ah - landlording – it’s in my blood! My mother’s father’s great-grandparents were landlords

How about that well known landlord, Gerald Grosvenor, the current (6th) Duke of Westminster?

Rich! Rich you will be! Richer than Croesus

He's doing alright.

Landlords sometimes inherit unsellable homes from dear departed relatives, and are forced to rent them out.

Don't worry, he's doing alright.

Regards, HBWelcome :0)

Anonymous said...

For me, one of the main problems of the private rental markets is that quite a few people including landlords treat it like it is an investment rather than a business.

Can you imagine the local corner store where you are charged for entering or exiting, be followed around by the owner who would then charge you for leaving finger prints, have to answer increasingly personal questions before you can purchase a pint of milk for at least a third than you can afford.

You can't - the corner shop would lose all its customers and would go out of business.

Imagine a private rental market where tenants are the customer and landlords actually give what we want.

Dazzla said...

"Imagine a private rental market where tenants are the customer and landlords actually give what we want."

I've said this before - it wouldn't matter how many landlords and flats there were if there weren't any tenants to let them. Without tenants, there would be no money. It's the only sector, as far as I know, where customers are treated like an inconvenience while the red carpet is rolled out for suppliers.

RenterGirl said...

The Duke of Westminster is hardly a hands-on landlords renting your average home, is he?

RenterGirl said...

The shop analogy is good, and one I've used before. landlords cannor eradicate risk, but can pay for proper landlord insurance (don't start up again HB Welcome...) and prepare for voids in occupation - even tenants who die. Dazzla - the way some landlords view their tenants is appalling: they forget that we pay the mortgage on what they see as (quoting myself here) their fragile porcelain piggy-bank we live in. Instead of maintaining cordial relations with good tenants, some bad ones undermine tenants, who if unsettled, and live in a area of plentiful housing supply (ie outside of London) can move. They would rather stay put, but you know...

Alex said...

A friend of mine (and famous blogging institution) has a whole economic theory based on this. He argues that there was an important technological change in the 90s - securitisation - and some policy changes.

1) hollowing-out the welfare state and expecting everyone to get a private pension

2) flogging council houses

when the financial industry was repeatedly caught ripping people off under 1), people stopped doing that (and the law was changed to make it harder to hard-sell financial products generally).

at the same time, the magic of securitisation made it much easier to trade property like shares or government bonds or whatever.

upshot: the UK's traditional landlord class had a huge opportunity to sell and they took it. the buyers were the BTLers, using the cheap mortgage money from securitisation to acquire a brick pension.

this made a sort of sense, but because supply is constrained and mortgage finance relatively cheap, property prices soared. this introduced a new element - old-fashioned landlords were in it for income, but now, capital gains dominated. it didn't really matter how it went as a business, as the only point of having tenants at all was to pay the interest carrying-cost of a big bet on the property market going to the moooon. even if the carry was slightly negative, you might put up with it.

this means, by the way, that the LHA cuts are seriously threatening to bankrupt a lot of the BTLers and to drop another ton of shitty paper on the banks.

Burbage said...
This comment has been removed by the author.
Burbage said...

The problem was caused by cheap credit and rocketing house prices, which meant a generation could get into landlording without any capital, expecting to be able to pay not just for the building, but the interest to buy it (often over a comparatively short period), the insurance, management and repairs. And make an income too. It's not sustainable, as so many have found, which is why landlords are becoming increasingly desperate and, like a bunch of cornered rats, turning into rapacious parodies of themselves.

Previous generations who rented tended to do so from people, sometimes employers, who owned the property outright and who didn't have to put the rent up every time they lost on a horse or their bank got jittery. And rental periods, outside the slums, were longer - my grandparents' rented the same house for over fifty years, on a rent they could afford even in pensiondom, and their agreement only lapsed after they'd both died.

We won't see a market like that again. It's all slums now. For lots of reasons - the destruction of stable employment, the fragmentation of families, the greed of those who sold the building societies and, of course, the greed of those who bought to let. And it's not going to change. Parliament is unlikely to help (given how eagerly MPs are queuing up to rent each other their overpriced flats), and even campaigning groups have been perverted by the lucre of housing associations and diversionary political innovations.

Unless we start from scratch and go back to digging caves, I don't see things getting any better in my lifetime.

Burbage said...
This comment has been removed by the author.
RenterGirl said...

Burbage - I couldn't agree more, and it's what I've been writing and blogging about for all this time. There even touts pushing bTl mortgages outside supermarkets at one point.

Anonymous said...

@anonymous 1

If you really think that choosing a home to rent is like buying a pint of milk, then I would understand why you may have had problems...

space cadet said...

@ anonymous 1

The point being of course: that grocery shoppers are not treated with the same contempt and suspicion and disdain at tenants, are they. Please try a little harder to see the point.

Anonymous said...

Landlords are very much the butcher, the baker and the candlestick maker.

In fact a lot of landlords came to the UK as factory workers in the 60s and found property investment as something that did not require literacy.

Whilst tenants may complain the law is very much in their favour as any landlord who has had a tenant who will not pay and will not move out will testify.

Anonymous said...

A lot of sense in this. The other big cause of accidental landlords is yuppies marrying. They each owned property when single, and on moving in together decide to rent out one of the houses rather than sell.

This leads to landlords with emotional investment in the property - "Those horrid tenants are smudging my house" - a recipe for bad relations. Being a landlord is a (part time) business, not a private hobby.

That said, having been both landlord and tenant in my life, I prefer the latter. It's not as profitable, but it's a lot less stressful.

RenterGirl said...

Yep. And the 'yuppies moving in together' don't have permission from the landlord... and are aghast when they find they have responsibilities.

Anonymous said...

Rentagirl - it is your kind of ignorant statement that makes people jump 'I wanna be a landlord' bandwagon.

The returns are lousy. You go to the bank. Borrow money at 5%. Then you rent out at a return of 6%. Your (profit) 'margin' is 1%. Out of which Landlords have to cover all expenses e.g. insurance, repairs and maintenance, letting agency fees, gas certificate, service charges, EPC, etc....

When Tesco buys burger, it might get them for £1 and then sell at £1.30 (that is a 30% margin).

Also, the landlord can only get a 60% to 70% mortgage. On a 200K property, I need 60k to 80k cash deposit sitting in a bank. If I had that kind of money, I rather spend the money, then buy a property to let - so no thank you!

A new homewowner can only get a 90% mortgage. So only 10k deposit. So much easier to get on the property ladder.

When you do get on the property ladder. If you get a £200k mortgage, after a 20 years of paying mortgage. You will still owe the bank £200k. The mortgage only covers the interest. You never pay off the loan.

The problem is that people have driven up house prices with easy credit and good jobs.

They think property is a get rich quick scheme... It is been driven by emotion and lack of understanding.