Though much attention has rightly focused on the plight of tenants during the coronavirus outbreak, the crisis has had a huge impact on landlords too. Contrary to popular perceptions, many landlords are by no means wealthy.
Indeed, whether they are among the 45% who own only one rental property or they are full-time ‘portfolio’ landlords, rental income is often an essential – sometimes sole – source of their income. Without it, all manner of landlords would be left in dire straits.
Given this fact, the Government approach towards landlords has so far been disappointing. Its announcements, billed as “protecting landlords and tenants”, have been misleading and damaging in several ways.
For one thing, the Government says it has “persuaded” lenders to give landlords a “mortgage holiday”, with the proviso that landlords pass on this ‘gift’ to tenants. In fact, the Government has suggested to a number of lenders (we are already hearing of those who will not agree to it) that they allow landlords to build up three months of arrears on their accounts, which must then be paid back with interest, That can amount to many thousands of pounds per property. Moreover, contrary to government announcements, this does not guarantee the landlord’s credit score won’t be adversely affected and could therefore cost landlords dearly in the future when they need to remortgage.
Even worse, by using the terminology ‘holiday’ the Government has led many tenants and left-wing groups to believe/promote the idea that landlords are getting a free three months, equal to three months’ rent that the tenant should not now pay. John McDonnell has, predictably, added his voice to this chorus. Landlord property pages are filled with stories of tenants saying they will now not pay, even when they haven’t suffered any reduction in their income. Of course, some tenants will be receiving insufficient support from the Government to cover all their rent. In these cases, many landlords are accepting deferments, with a plan to repay arrears at a later date or even temporary rent reductions. This is more likely when the tenant has been a reliable payer in the past.
The Government has also taken no account of the fact that around 50% of properties were bought without a mortgage, with landlords putting their savings into one or two properties as an income alternative or instead of conventional pension schemes. Many older people, including disabled people and those in care homes – some affected by Covid-19 – will be worried about paying their own bills if they are being pressurised or forced to effectively subsidise non-paying tenants. Many rents include all bills, so the landlord also faces this hit if tenants don’t pay.
Even managers in the social sector which houses around 17% of the population – compared to the private sector housing 20% – have greeted the idea of rent-free periods with ridicule. David Bookbinder, Director of Glasgow and West of Scotland Forum of Housing Associations has pointed out how it would cost £48 million to cover one week’s rent in Scotland alone.
Even if tenants understood that so-called ‘holidays’ are deferments, it is completely unrealistic to expect most tenants to not pay rent for three months or more and then pay the arrears back. Any landlord will tell you that it is nigh on impossible to get arrears back at the best of times.
As the Government has underwritten many people’s salaries and increased Universal Credit and Local Housing Allowance, many tenants should have no or little difficulty paying rent. The Government should be sending a clear message that the income replacement is to pay for expenses such as rent and that they should not expect to have income replacement and also not pay rent.
In banning evictions for an initial three months, with a likely extension, ministers have also given carte blanche to tenants who were already behaving badly to carry on not paying, damaging landlords’ property and/or being a nuisance to housemates or neighbours, with the landlord carrying the financial burden for the Government’s decision.
Only last month, the idea of completely banning evictions was mooted by the extreme-left wing party in Spain, Podemos, and even its Socialist coalition partner knew this was too extreme as without the threat of eviction, where – especially for those already with bad credit – is the incentive to pay? More importantly, what has happened to private property rights, when non-owners have power over the property, and owners alone are left to shoulder the responsibilities?
As well as tenants refusing to pay rent, some landlords face the issue of tenants simply upping sticks. At any other time, the landlord could mitigate losses by seeking a replacement tenant. However, the Government has effectively banned landlords from filling empty houses or rooms. I am not saying this is wrong as a temporary measure; but again the Government that has implemented the ban, with landlords facing the consequences.
They should, at the end of the three weeks’ ‘lockdown’ perhaps create a window during which lettings are allowed, with safety measures in place, such as virtual tours of properties. This could minimise some losses and will be beneficial to those who need to move in or out of their accommodation. As Daniel Hannan has argued, we should be looking to ‘loosen the restrictions as soon as possible.’
One final thing: full-time landlords see themselves as self-employed and submit their self-assessment tax returns like all other self-employed people, but the Government’s largesse to the self-employed has excluded landlords – amongst others – from any assistance. To treat being a landlord as a hands-off investment is plain wrong, given the labour-intensive work involved and the wide range of regulations to be followed.
A simple measure which the Government could take and which would actually help landlords would be to repeal Section 24, which is effectively a tax on finance interests. If it doesn’t, some landlords will now face making no profit at all or even a loss, but still be liable for a large tax bill.
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