Landlord Wars: Return of the Accidental Landlord?

Written on 31 January 2018 by Robyn Clark

Tens of thousands of homeowners became accidental landlords in 2017, as homes in the notoriously expensive South East and London struggled to sell leaving their owners no option but to rent them. Research has shown that as many as 80,000 properties in the UK were put up for rent adding to the rental housing stock across the UK. Accidental landlords now account for as many as one in 12 of the homes that came onto the rental market in 2017, a figure that has grown for the past three consecutive years.

This data from estate agent Countrywide looked at properties across Britain that had been available to rent after having been put up for sale within the previous six months. They found that accidental landlords in London accounted for 12.5% of new rental homes, the highest proportion in the UK, compared to just 5.6% in all of Scotland. This divide reflects the tough market within the capital’s ‘housing bubble’ in comparison to other parts of the UK. The decision by owners to keep hold of properties and let them out in order to move home, has come despite the recent tax crackdown on the buy to let market.

What are accidental landlords?

Most landlords who are in the buy to let market are in the business by choice. Whereas accidental landlords often enter the market through circumstance, usually because they have had to let out a property they had previously tried to sell or they have inherited one.

An advantage to owners of choosing to let their current property out in order to buy their next home (let to buy) is that by converting their residential property to a buy to let they can take advantage of the current low rates and put it on an interest only basis.  If the mortgage remains on a traditional repayment basis the cost of their monthly mortgage payments may outstrip the rent they can generate. Also, if they are in rush to move they can avoid having to sell at a cut-down price with a view to actually selling when the market is picking up again.

The disadvantage is that those choosing to rent out their home rather than sell, borrowers must obtain permission, known as consent to let, or switch their mortgage to buy to let product. They will also face income tax on their rental income and with changes in taxation private landlords can no longer offset all mortgage interest against that rental income.  Lastly, if they buy a new residential property before selling their old home they can be charged an extra 3% stamp duty surcharge.  This can be reclaimed if they sell their old main residence within three years of buying the new main residence but it is a significant cost to bear at the time.

With the number of would-be sellers becoming landlords having increased for the last three years, there is a marked difference in how much time accidental landlords invest in a property compared with those in the mainstream rental market.

Conventional landlords often retain property for around 17 years before moving on, while accidental landlords only stick around for around 15 months before finally selling their home.

Accidental landlords could unknowingly be contributing to some of the serious issues in the private rented sector, including property disrepair and unfair evictions. Research in The Times estimates that as many as a million tenants are being forced to move every year as the rising number of “accidental” landlords becomes a significant problem for generation rent. One in five tenants say they have been forced to move when they did not wish to and two thirds of these say this was because their landlord sold up.

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Categories: Buy-to-Let Mortgages, Robyn Clark