property investment

Since the COVID pandemic began, the UK government has thrown literally hundreds of billions of pounds into supporting the economy. From domestic tenants to office tenants, huge conglomerates to small businesses, money has been pouring in. However, private landlords are among a handful of groups in the UK yet to receive any assistance whatsoever. 

Bizarrely, reading the press over the last few days they have been painted as the devil incarnate. Why? 

Eviction ban extended 

The UK government have announced a further extension of the eviction ban, which has been in place since March 2020. As a consequence, private tenants will have an extended level of protection for the next six weeks. In reality, this is likely to be extended again unless we see a sudden fall in the number of COVID cases. So why are private landlords still being attacked? 

Change to rental arrears definition 

Prior to the recent extension, it was only tenants with the equivalent of nine months of rent arrears who could be evicted. Crucially, the eviction restrictions at the time stated that rent arrears since the pandemic began would not be included in this figure. The latest restrictions on evictions have cut the equivalent rent arrears period down to 6 months. Landlords will also be able to include arrears built up since the pandemic began in March. This has caused uproar, but why? 

Why are private landlords being criticised? 

As ever, many in the mainstream media are peddling the guise that all private landlords are “wealthy”. This is certainly not the case, with many private landlords now struggling with their mortgage liabilities, due in the main to rental arrears. Critics point towards the mortgage holidays made available to private landlords. Even though these are helpful, they are simply a means of delaying mortgage repayments with additional interest charges. 

So, the government has milked the UK private rental sector for years, but is unwilling to offer any meaningful financial assistance to private landlords. 

The development of the UK private rental sector 

It is important to remind ourselves how the UK private rental sector has developed in recent years. If we hark back to the 1980s, the Conservative government introduced the “Right to Buy” for council tenants. While often criticised by centre and centre-left political parties, the Labour Party continued this policy during office. Indeed, many parts of the UK have only just brought “Right to Buy” to a close over the last couple of years. 

There is no doubt that the initial scheme led to a huge increase in home ownership in the UK. Indeed, many would describe it as the flame which lit the blue touch paper for the sector, changing the whole concept of homeownership/rental in the UK. Local authorities raised millions of pounds selling off social housing stock, and the new homeownership phenomenon pushed prices higher and higher. 

Demand for rental properties 

As the average price of property in the UK began to rocket, many people were forced to turn to the private rental market. This was due to a mix of limited social housing/council properties, although healthy wage inflation made private rental properties more affordable to the masses. Relatively unregulated in the early days, the private rental sector in the UK has since become one of the most heavily regulated property markets in the world. 

As night follows day, new taxes and direct/indirect costs began to rise for private landlords. Seen by many in the popular press as the devil incarnate, the sector was seen as an easy target by successive governments. Unfortunately, even prior to the COVID pandemic there were signs that significantly reduced returns were prompting many private landlords to leave the market. 

The changing face of the private rental sector 

Anyone who thinks that the UK private rental sector will exit the pandemic in any recognisable form is deluded. Landlord returns have diminished, some tenants are wilfully withholding rent payments and landlord debts are spiralling out of control. The protection afforded to some tenants has been abused, but still no assistance available for landlords. 

At the same time, successive governments have promised huge increases in newbuild properties and social housing. As you might have guessed, these have so far failed to emerge. So, as a growing numbers of private landlords rethink their long-term strategies, the already significant rental supply/demand imbalance will only worsen. Local authorities are highly unlikely to find additional finance to build new social housing, thereby exacerbating the ongoing shortfall in rental properties. 

The worst of political short-term thinking 

We are all well versed in the manner in which politicians rain money down on the voting public, and businesses, to secure their votes. They will do almost anything to increase their short-term popularity. Unfortunately, a concerted effort by all political persuasions to brand private landlords as the devil incarnate will have major medium to long-term repercussions. 

The Citizens Advice charity estimates around 500,000 tenants are currently in arrears, with an average debt of £730. This equates to £365 million in total rent arrears, payments which would in the main have been used to cover mortgage liabilities. We can only estimate how much of these rent arrears are recoverable, or how long the pandemic will last, but we know the impact on the private rental market. 

Unless the government is able to offer some kind of assistance to private landlords, there are serious concerns that the sector will implode, leaving many homeless. The cost of the resulting bailout would be a multiple of any sensible COVID support package. Short term thinking can be expensive in the long run!

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