BTL landlords should share capital gains profit with tenants – call

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’.

Mr Bird tells the story of ‘Jim’

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.

‘Money borrowed from the bank was paid for by Jim’s rent’

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.

‘Increased the chance to cash in on gaining wealth and property’

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’.

‘Cut him in when you throw him out and sell the property’

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.”

The ‘giant rip-off of the tenant’

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.”

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