Gentle Reader, let me let you into a dark family
secret.
My father had a rented property. Indeed at one time he had two. These were inherited through his father and
grandfather who had something to do with the leather trade … The existence of
this small second income stream was something that my father carefully
concealed from me as a child for many years.
I’m not sure why but I sometimes wondered after visiting the place why
its existence had to be concealed so carefully.
It wasn’t as if he was running a brothel on the side …just renting some
rooms in an old house. But I suppose the
fear was other people’s jealousy. The
trouble with children is they talk…
Well, I’m unfortunately not a child anymore so please indulge
me while I run my mouth….
My father explained the existence of this somewhat drab but
functional property when he could inevitably no longer conceal it from me because
he had to take a new sink there and was stuck with me that day in the following
way: “Your great grandfather lived in an era before pensions so he had to put
his money into to something that would generate an income for his old age.”
I was never entirely convinced by this explanation but I suppose if he'd said "we do it to make money" he might have come over as Donald Trump. Anyway, one can’t get too judgemental as the room I’m sitting
in now typing this is one that has been purchased partly with money that
derived from that property. Watch me and
my unearned wealth…Anyway who doesn’t make money out of those who are poorer them?
… apart from the one unfortunate individual in the UK who is the poorest of all?
In Psmith in the City (written in 1910) Psmith’s friend Mike
rents a dreary room when he moves to London
to work in a bank. Back then P G
Wodehouse described the process of renting property thusly:
“There is probably no more depressing experience in the
world than the process of engaging furnished apartments. Those who let
furnished apartments seem to take no joy in the act. Like Pooh-Bah, they do it,
but it revolts them.”
This seemed to me to be my father’s experience of being a
landlord. He was constantly being called
out to fix things that the tenants broke and while the erratic revenue stream
was useful the activity of being a landlord seemed to give him little
satisfaction in its self. More
importantly however there was another secondary reason my father was a landlord
– he couldn’t sell the place he’d inherited because it had “sitting tenants”.
Well, he could sell it but he had to sell it with the tenants
as if they were part of the furniture.
Therefore unless he wanted to sell it at rock bottom price he had to
wait for the existing tenants to move out.
I would say “either move out or die” but bizarrely under the Rent Act
1977 even the death of a sitting tenant was no guarantee that the property would
be vacated since the legislation allowed tenants to will their tenancy to a
relative as if they were the owner…?
Yes, there was once a time when tenants had perhaps more rights than
they should have … How that now seems …odd?
In the past there were lots of tenants with this status
(known as “protected tenants”) whose tenancy rates were set by the Rent Office. The existence of these tenancies dates back
to WWI when the government was worried about there not being enough houses for munitions
and other essential workers and decided that the free market system needed a
lot more control. As this was popular
the policies were continued after the war in a haphazard way until 1977 when Jim
Callaghan consolidated all the legislation into the 1977 Rent Act. This act has never been fully repealed so tenancies
created under it pre-1989 continue under completely different rules to those
that apply to newly created tenancies today.
Obviously the 1977 Rent Act didn’t quite fit into Margaret
Thatcher’s vision so her legislation changed the system again so that tenancies
created after 15 January 1989 are all “unprotected”… and by unprotected I mean
completely unprotected… This largely
went unnoticed at the time as the two systems ran in tandem and in 1989 there
were very few tenancies on the new terms but inevitably the number of protected
tenancies started immediately to decline until…
Like most of Mrs T’s innovations it’s taken several decades
for the negative effects of this legislation to come to fruition but today they’re
there for all to see in ever increasing quantity and glory … A complete
free-for-all where anyone on over £25000 can get a cheap loan from a bank for
an interest only mortgage to become a “Buy-To-Let” landlord and the risks of
being a landlord are radically reduced as the tenants now have no protection
and can be quickly evicted not just for non-payment but on the slightest
caprice. No wonder Harvey Keitel doesn’t
even bother selling Home Insurance now only …Landlord Insurance.
These new landlords of today are not like my father – they have
not inherited a property and become locked into a bizarre duty of care to
people who have to be sold with the property as if they are furniture … they
are effectively just franchisees in a vast property portfolio system in which
banks “own” a lot of property that they rent interest only.
Which raises the question how do the banks find the money if there are
no repayments? Well, banks make their
money from mortgages on the interest. It
was only a matter of time before some bright spark realised that if you take
the ownership dimension out of the system you can increase the amount of
mortgages you sell … and there’s little risk for them as the properties they
bought return to them when the interest only mortgage expires.
When you analyse this it’s simply a method of taking homes
out the system. Moreover by taking homes
out the system the banks fuel house price inflation which means when they get
their interest free properties back when the landlord sells what they don't own they’ve magically increased in value. The buy-to-let landlord then evicts the tenants
and pockets the price differential and everyone’s a winner – except tenants and
people trying to get on the housing ladder…
At least my great grandfather bought his properties… Indeed
calling these purchases buy-to-let properties is a bit of a deception in its
self since “interest only" mortgaged properties are not being “bought” at all … just managed. A more accurate title would be “Pay Interest
To Rent” mortgages.
Yes, what a strange creation the modern landlord is these
days. He does not actually need to buy
anything or even part-buy anything. He
does not need to repay anything. He just
pays a higher interest rate than on a property than he would if he lived in it
and the banks are happy for him (or her) to manage their property portfolios for
them.
I know I’m repeating myself but the more I say it the less
sense it makes…
Like being a comedian no qualifications are required to be a
landlord – just a medium income and some collateral …or in other words being
middle class. Perhaps this is why so
many people want to do it? Or perhaps it
is because it is the ideal second job? A
way to make a second income out of your first income but in a way that will not
threaten your main employer because nothing useful is actually being created …?
And people wonder why the housing market is a nightmare. How we resolve this situation I don't know... Perhaps if we start WWIII then we'll all become munitions workers again and the government will have to introduce rent controls so we can make the bombs but only a few bombs are really needed these days and most of those are made in Aldermaston...
Sorry if this post has put you to sleep.
Cocoa…?
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