Buy-to-let is the story of the moment. The popularity of buying a property to let on a small scale has become the investment choice of many – so many in fact that anyone over 35 who cannot say (with a slightly self satisfied smug look) that they let out one of their properties, can feel a little disadvantaged.
However, becoming a property investor hasn’t always been a conscious decision. A quarter of all UK landlords are ‘accidental’ according to recent research, but while the term is bandied around, scratch the surface and a much wider range of emerges.
For starters the term ‘accidental’ is not accurate. It would be better to call them ‘non-investor’ because they usually rent out a former home, rather than invest or speculate.
And the reasons why people become landlords accidentally vary too. These include those who inherit property, rent out their home after moving into a partner’s or those who can’t sell and remortgage their home to buy a new one. Also, there are those who relocate with work but who want to hold on to their original home.
THE PROPERTY MILLSTONE
Andrew Overman, of Bury St Edmunds sales and lettings agency Chilterns, says he first encountered this kind of landlord in large numbers as the 2007/8 financial crash unravelled.
“Most of the accidental landlords here were people who had to move away to find work or were relocated with their companies. Often they had mortgages that were interest-only or very high loan to value, and it was common that their properties suffered negative equity,” he says.
The accidental landlords I deal with don’t see their properties as an investment or a pension pot – it’s more of a millstone around their neck . Andrew Overman, Chilterns.
Now, though, change is in the air. Andrew says two things are making them sell up. Firstly, many landlords in his area feel that they are “being clobbered” by the tax changes announced recently by The Chancellor, George Osborne. And secondly, in many areas house prices are rising – so many accidental landlords are finally free of the negative equity and can sell up.
“Three years ago I would have sold a two bed in nice condition around here for £115,000 but now that same house would be as high as £145,000,” says Andrew.
“The sort of accidental landlords I deal with generally don’t see their rental properties as an investment or a pension pot but rather a millstone around their neck so [now that prices are rising] they’re putting them on the resale market, which is compounding the problems within the supply of rental properties here.
“This is a big problem because we already have up to eleven potential tenants chasing the decent rental properties.”
QUESTIONS OF EXPERIENCE
Carolyn Uphill, Chairman of the National Landlords Association (NLA) which carried out the accidental landlord research, says there’s been a lot of “negative comments in the media and from politicians about accidental landlords not knowing what they are doing,” she says.
“So we felt it would be a good idea to get a feel for how many people out there in the private rented sector started out accidentally,” she says.
“We want to talk to these people and help them understand the nature of the business that they’re in and approach it in a professional way, for their own protection and well as enhancing the reputation of the PRS.
Many accidental landlords don’t see themselves as a landlord. It is very perturbing because the regulations and obligations are exactly the same. Carolyn Uphill Chairman, NLA.
Another word to describe accidental landlords would be ‘inexperienced’ – that’s also a view borne out by the NLA research. As Carolyn points out, some single-property landlords (who tend to be accidental landlords) later get into trouble, “They simply don’t realise what they’re getting themselves into,” she says.
“We worry because many of them don’t consider themselves to be a landlord even though they have a rental property. I think that is a very perturbing because no matter how many properties or few you have and no matter how you started the rules, regulations and obligations are exactly the same.”
Carolyn thinks accidental landlords also tend not to see themselves as running a business even though they have “got a product, a client and are providing a service” and that, “they should approach it in a business-like manner which is all about understanding the rules and regulations to the activity that you are involved in,” she says.
Andrew at Chilterns has also spotted this. “I find that professional landlords are very commercial when they are taking decisions and are looking at their capital investment over the longer period, whereas accidental landlords don’t.
“It’s much harder to persuade them to spend money on a property when it’s required, which is often because they became accidental landlords in the first place because they were financially constricted. They don’t look at their property as a long term investment.”
MIND THE GAP
The results of this attitude gap are clear. The NLA research reveals that 30 per cent of landlords with a single property (who are often accidental landlords) either break even or make a loss.
“The government may not see landlords as business people [for tax purposes], but nevertheless these landlords need to take a professional approach. You can throw terminology around, but accidental landlords have to understand that however informally they’ve got into it, it’s a formal undertaking.”
This is clearly an opportunity for lettings agents because, as Carolyn puts it, “If you are inexperienced then the sensible thing to do would be to use a professional to manage your property,” she says.
“But we find that a lot of people who get into renting out a property accidentally also tend to find their tenants accidentally. Therefore, they stand outside the system and everything seems hunky dory until it goes wrong. And often, when something does go wrong, it goes wrong in a very big way.” One opportunity for agents to bring those innocents into the more protected world of professional management is the avalanche of regulation descending on the lettings industry. Right to rent, landlord registration, deposit protection, revenge eviction regulations and other changes to the evictions process all mean less experienced landlords arguably need a professional to hold their hand.
But the issues ahead could be greater than those we have now. There is one question that is seriously vexing both Carolyn and Andrew and that is whether there will actually be any accidental landlords left at all in a few years.
“I do feel that some landlords are feeling that the Chancellor’s new tax regime is the straw that broke the camel’s back and that some will start an orderly withdrawal from the sector,” she says. “We’re getting that from the smallest landlords to some of the older, portfolio landlords who feel that this is a step too far and everything’s just too complicated now
Why I became an accidental landlord
Sixty-something Phil Howgego recently retired as a 747 captain with Virgin Atlantic. “My partner Glynis and I sold our main home in the UK after we decided to move to France a few years ago but I needed both a crash-pit for when I was flying out of Gatwick. So we bought a newly built two-bedroom apartment in West Sussex,” he says.
“We spent six months living in the flat and then moved to France but I carried on using it while I was still flying. Then the opportunity arose to retire early so we then decided to rent out the flat and now it’s more of an investment.
We didn’t plan to be landlords but it happened and, for us, it’s just a really good idea. Guy Leonard manages it and they are really good.
“Also, we realised we needed to keep a toe-hold in the UK property market so that, if in ten or fifteen years we needed to return to the UK, Glynis and I wouldn’t be locked out of the market by high prices.
“We didn’t plan to become landlords but it happened and, for us, it’s just a really good idea. The property is managed by local agent Guy Leonard and we use them because our view is ‘oh hell, we’re not there and for the money let someone else do all the hassle’ and anyway they’re really good.”