Has the Government gone too far? Is it worthwhile being a landlord?

This question is at the heart of matter for landlords as taxation policy and general regulations are tightening in response to the growth in the number of UK citizens renting their homes from private landlords.

Since the financial crisis in 2008, buy to let has been seen as a low-risk alternative to savings or stock market investments.  Oxford’s landlords have done particularly well, benefitting from strong annual rent inflation and strong capital appreciation.  

Data from Kent Reliance shows that over the course of a 25-year investment, a basic tax paying landlord, placing a typical 30% deposit of £73,908 on a property, will generate a total profit of £265,500 after all costs and taxes taking into account the Government’s changes

Once the impact of inflation over the period is factored-in, this represents a profit of £162,000 in today’s money, or £6,475 annually. 

If buy to let returns look set to continue being attractive, why are landlords leaving the market, selling their assets and investing elsewhere?  According to Hamptons, the number of properties available for private rental has fallen by 5% over the last 2 years in the South of England that’s 82,000 fewer rental homes.  That at a time when demand for rented accommodation has never been higher, and when it is predicted that over 17million UK citizens will depend on good quality rented homes being available to them.

So, has the government gone too far?

That question is not straightforward to answer.  Based purely on the economic argument, the figures above from Kent Reliance show that buy to let will continue to be viable financially.  Evidence from Scotland (where a tenant fee ban has been in place for several years), suggests that the ban of tenant fees in England will increase costs for landlords initially, but thereafter rents will rise above their historic trend rate.  If the supply of private rented homes is already reducing as Hamptons assert, then the rate of rent inflation could be even higher in England than that seen in Scotland.

Being a landlord is a business.  Just as companies owe a duty of care to its employees, landlords owe a duty of care to their tenants.  And, just as businesses budget their costs to optimise profits, so should landlords should budget a proportion of their gross income for reinvestment to maintain their assets.

Some changes being introduced by Government are both considered and necessary e.g. the improvement of minimum standards in the areas of gas, electrical and fire safety, the licencing of houses in multiple occupation; tightening of mortgage assessment processes and level of rental to repayment cover to protect landlords as interest rates rise.  However, other changes are pure politics, and seem certain to have unwanted consequences e.g. the ban of fees charged to tenants, and the stamp duty surcharge.  Both of these risk reducing the supply of private rented properties at a time when cities like Oxford already have a shortage.

As things stand:  Has the Government gone too far?  Yes.  Is it still worthwhile being a landlord? Yes, provided you recognise that you are running a business and are prepared to devote the time to running that business properly.