This blog post about being a reluctant landlord has been swirling in my mind for quite some time now. I have mixed feelings about being a landlord and I’ll try to explain why in this post. Are you in a similar situation or have a view? Please comment below.
Here in the UK we have a housing crisis
This issue doesn’t get a great deal of air time because it simply rolls along with little changing and society almost seems to accept the status quo as an unavoidable reality.
If people try and explain why we are in this mess, they often point to the numbers of immigrants and disregard the aging population, the reduced number of social housing options (or ‘council housing’ in old parlance) and other factors in quite a complicated picture. As this blog post isn’t about the ins and outs of failed government policy, please allow me to add some more information and express my own take on the situation.
According to the Statista website, there has been a steady increase in the number of privately rented homes since 2000 and has, over the last few years, levelled off to a certain extent. In 2023 there were 4.6 million households in privately rented housing – such a huge number of people in privately rented homes!
The Office for National Statistics has a wealth of interesting information. Rents have increased disproportionately over the years and in September 2023 the average increase was 9.7% annually. There were some regional variations which means, for some, their rent rises are eye watering.
Closer to home, our local authority keeps track of homelessness applications. It seems there is an unstoppable upward trend in the number of individuals and families finding themselves homeless. This is disturbing, no matter what the reasons for the homelessness.
The reality of rent levels
The most basic economic principle of Supply and Demand is the main driver for rising rent levels here in the UK. Local housing policies try to influence this but I’m not sure it really works.
Instead, average rent prices are at levels where they are the same as typical mortgage payment. This means that your average tenant, who rents an average house in our area, will have to pay £1,500 a month in rent. This is for an unfurnished house and the tenant has to pay their own utility bills, Council Tax etc. As a proportion of an average salary, this will be quite large.
So for an average person earning, say, £30,000 gross salary each year, paying out £18,000 in rent, what chance do they have of buying their own home? The answer? Without some kind of a windfall or a second job, or a spouse able to have a reasonable income, the chances must be very slim.
For the private landlord, this is all good news. Many will go down the ‘buy to let’ road and their tenants then pay their mortgage, if they have a mortgage in the first place. It only needs a private landlord to own 2, 3 or 4 properties to have a nice, easy income and to benefit from a long term capital growth.
Another bonus for private landlords is the balance of power. Currently (and this might soon change) landlords seem to get away with evicting tenants at the drop of a hat as they seek another tenant who they can squeeze for even more rent. There are so many cases of substandard housing around and tenants are often reluctant to push their landlord to improve things through fear of being evicted.
Me, the reluctant landlord
I never set out to become a landlord, it just happened (and you can look back to summer/autumn 2020 to see the story). Since then we have rented out our ‘family’ home that we lived in for many years.
We asked ourselves whether we should sell it but decided against this. Once we had made the decision to rent it out (because we needed the income, not the capital) we had so many questions to answer.
- Should we put it in the hands of an estate agent?
- Should we lease it to a housing association?
- Would Airbnb work well for us?
- Should we rent it to a stranger?
- Did we know anyone who could be a tenant?
- Should we ask the market price or take a different approach?
In the end we approached a young family that we knew and agreed on a sympathetic rent, which works for both parties.
I needed to be unemotional about it. I had to forget the rental house had been our family home for so long. I have to see it only as a financial asset, otherwise it can become a bit awkward.
What yield do we seek? By this I mean the value of the property and the income we derive from it. If I were the bank manager, I would seek the maximum.
On the other hand, as the reluctant landlord, I would want to give the tenant a chance at one day having a place of their own. And then because we know the tenants, does that change the relationship at all? Should I insist they follow every single clause in the tenancy agreement and give them a ticking off if they step out of line – does this become easy or difficult if you’re friends with the tenant?
Perhaps it would be easier to sell and invest the money? Well, although there might be a logical argument for this, but what would happen to the tenants? Perhaps they would be at the mercy of any other landlord who would charge the going rate? For us, we like our tenants who always pay the rent on time and we have no plans to turf them out. Besides, keeping the house brings balance and diversity to our portfolio.
And so my questions could go on and on. What about you, if you’re a landlord? Are you a buy-to-let landlord and building up a huge portfolio? Maybe you’re a small-scale landlord with just one property?