0:10 AM, 5th July 2023, About A year ago 82
Text Size
Since tenants pay for their landlord’s buy to let mortgage repayments, they should get a share of the profits, one leading commentator says.
John Bird is the founder and editor-in-chief of The Big Issue, a social enterprise and street newspaper, and in the latest issue he says that ‘making money from buy-to-let properties has long been like shooting fish in a barrel for landlords’.
And it is now time that ‘renters got their share’.
In his article, Mr Bird tells the story of ‘Jim’ who, 20 years ago, began renting a flat that, if he could have afforded to, would have bought for £100,00.
But that didn’t happen and over 20 years, Jim’s rent doubled and now the landlord wants him to leave so he can sell the flat.
Mr Bird says that the landlord has issued a Section 21 ‘no-fault’ notice but says that since 2003 when Jim moved in, the flat’s value has rocketed to £500,000.
That means £400,000 has been added to the value of the property while Jim has never missed a rent payment.
Mr Bird writes: “As it was a buy-to-let, the money borrowed from the bank was paid for by Jim’s rent. The person who borrowed the money did not have to pay for the mortgage.
“The buy-to-let arrangement, as long as the property value does not fall, is an ingenious way of borrowing money so that you can increase your income, and also see the steady increase in the value of what you bought with your mortgage.”
He goes on to say that after 20 years, the money paid by Jim hasn’t improved his worth – but his rent payments have increased his landlord’s value.
And when his three months ‘notice is up, he won’t be getting a share of that value.
Instead, he will be searching for a new home and facing a shortage of flats with fast-rising rents.
Mr Bird writes: “What the buy-to-let market has done has increased the chance of quite ordinary people to cash in on gaining wealth and property.
“Around 90% of rentals are owned by individuals who own maybe one or two buy-to-lets.
“It is often their pension and what they want to pass on to their children.”
He says there are firms buying and letting dozens of properties but ‘small-fry buy-to-let landlords dominate the market’.
He continues: “The landlord has not created the increased value. Jim has. So why not cut him in when you throw him out and sell the property for top price?
“I asked this of a woman who told me that she bought a flat five years ago and is now selling it for twice the price: Had you thought of rewarding the person who made this profit for you?
“She pointed out that if the market had gone the other way, then she would have been taking all the risks. True.
“But for the last 30 years making money out of buy-to-lets has been like shooting fish in barrel.”
Mr Bird says that buy to let has enabled investors to build a portfolio who would not have been able to do so without the ‘giant rip-off of the tenant’.
He adds: “The tax relief that goes with owning property you let out, a tax bonus to encourage investment, adds to this.
“Your standing in the community because you own property is reflected in also having to pay less for your credit.
“And you’ve got something to give the kids.”
Previous Article
Lease dilemma when securing a B2L mortgage?Next Article
London's rental crisis is a 'disastrous' situation
SimonP
Become a Member
If you login or become a member you can view this members profile, comments, posts and send them messages!
Sign Up17:44 PM, 5th July 2023, About A year ago
How about a petition to bring back Taper Relief since the majority of Capital Gains is based on INFLATION and not the "Jims" of this fantasy world.
Just a thought, if "Jim" feels entitled to a share of the Capital Gain (for which he'll be liable for CGT), should he also not be contributing to the annual income tax that landlords have been shelling out because of his occupancy? I wouldn't like to have to work that one out.
Andrew57
Become a Member
If you login or become a member you can view this members profile, comments, posts and send them messages!
Sign Up18:27 PM, 5th July 2023, About A year ago
What happens if I don't have a mortgage do I just give the house to the tenant?
Big Issue!! We have a Romanian woman in our town selling the Big Issue. She regularly goes to top her coffee up at Costa Coffee and at the end of the day is collected in a big blacked out mercedes. Maybe the Big Issue needs a bit of investigating!
Stella
Become a Member
If you login or become a member you can view this members profile, comments, posts and send them messages!
Sign Up18:30 PM, 5th July 2023, About A year ago
Reply to the comment left by SimonP at 05/07/2023 - 17:44
Taper relief would be an excellent idea.
Paul Smith
Become a Member
If you login or become a member you can view this members profile, comments, posts and send them messages!
Sign Up19:52 PM, 5th July 2023, About A year ago
Consider John renting in Blackpool, his Landlady Janet who paid £120k in 2007 for a three bed house in Blackpool is still in negative equity worth £110. Janet had borrowed £90k but the banks have just doubled her interest rate payable to 8% or £7,200 a year. John her tenant pays the LHA rents, and this is £565pcm or £6,780 a year which is paid in full by the council. They also help John with his council tax. Janet has to insure the property, maintain standards, upgrade energy and maintain legal docs, she has tried to help John with his issues she had spent thousands in energy improvements but her house is still in 2023 worth less than she paid.
Neither Janet nor John are the problem - it is the BANK. They have made money throughout. They would never lend to John even though they knew he had to live somewhere. The council wouldn't house John either, so without Janet he would have been on the streets.
The same Bank that undertook affordability checks in Janet just doubled Janet's payments making her payments unaffordable. But now their interest is more than Janet can earn in rent and she invested £30k of her own money. Janet has done repairs and looked after John. The banks have made money throughout and continue to do so, John has his home paid for by the council.
In London making money may have been like shooting fish in a barrel but Blackpool has been more like Janet sticking her arm into a bucket of Conga eels and Jellyfish as prices haven't risen above 2006 levels
The bank should have lent money to those who need housing but they didn't and don't. Now the banks are taking so much money from Janet she will default. John will then be made homeless. The bank will repossess the property. Janet has had nothing but stress and done nothing wrong.
London prices are now slipping and will likely tumble as buyers and landlords are unable meet the doubling in bank payments.
The doubling of mortgage rates effectively means you can only afford half the house. This maybe explains the slowdown in the market and what is to come.
Gromit
Become a Member
If you login or become a member you can view this members profile, comments, posts and send them messages!
Sign Up21:30 PM, 5th July 2023, About A year ago
Reply to the comment left by SimonP at 05/07/2023 - 17:06LOL! damned auto-correct!
SP
Become a Member
If you login or become a member you can view this members profile, comments, posts and send them messages!
Sign Up23:21 PM, 5th July 2023, About A year ago
The point of John Birds article was jealousy sells, not the truth. The simple fact is that 2nd property ownership has been hijacked by the media and the word "Rent" and own are being merged. The irony of course is pandering to this narrative is ultimately hurting the poorest the most. In this market, sadly many Landlords are cashing in on any property that doesn't justify the exposure and time to run. These are at the lowest end of the rental market. The people who will lose out are the people who struggled to afford the rent on those homes already and end up in bedsits instead.
54PreA
Become a Member
If you login or become a member you can view this members profile, comments, posts and send them messages!
Sign Up23:25 PM, 5th July 2023, About A year ago
Reply to the comment left by Whiteskifreak Surrey at 05/07/2023 - 09:41
Have you not read the WEF agenda?! Of course it's a stitch up!
54PreA
Become a Member
If you login or become a member you can view this members profile, comments, posts and send them messages!
Sign Up23:41 PM, 5th July 2023, About A year ago
Reply to the comment left by HMD HMD at 05/07/2023 - 16:50
Agreed, the 5 I have cause stress, concern or some kind of mental anguish every day as soon as I wake up, so sick of it now it's time to get rid.
I've got 1 empty that was left badly so a month on and I'm still trying to sort the place out.. Tenant basically lived in the bedroom as couldn't afford to heat the whole house over winter, (small 1 bed) washed clothes in the bath and left them out to dry- cue mould everywhere! No ventilation like I kept asking him to do, its an older property. Rent was way under market price. Supplied him with a dehumidifier, wouldn't use it because he had a smart meter and it was over a pound a day to use. Anyway I digress..
How much profit do I give him for the 7 months he was in once I sell?! What an absolute idiot Bird is.. can I ask tenants to help cover towards my burgeoning annual tax bill too that they've made me liable for?!
Harjit Mahal
Become a Member
If you login or become a member you can view this members profile, comments, posts and send them messages!
Sign Up7:14 AM, 6th July 2023, About A year ago
I think this is a stab at capitalism missing the capital part.
If long term tenants want a share of the capital gains, they should be able to buy shares and also contribute to management fees.
Then they become owners and can share in the profits and capital gains or overall losses.
This can be provided by a move to the larger rental provider companies where you can already do this.
Steven Walsh
Become a Member
If you login or become a member you can view this members profile, comments, posts and send them messages!
Sign Up9:46 AM, 6th July 2023, About A year ago
Reply to the comment left by Mark Alexander - Founder of Property118 at 05/07/2023 - 09:42
Getting sick of some people who want everythink for nothink..
Cost a lot of money to keep a tenent in a good quality property.
Sometimes the evil landlord lives in a worse property than there tenant.
Also it's a choice everyone can buy a house if that what they want.
Not every house costs 100k
Can always buy cheap house for 60 that needs maybe 10k of investment