I’ve been a buy-to-let landlord since 2002 [says Ian*]. I have eight properties: two in London, three in Basildon in Essex, one in Dunstable in Bedfordshire and two in Manchester. Two of them are two-bedroom flats and the rest are three or four-bedroom houses. I bought my first flat in Manchester in 2002, just as I was finishing university. Gradually I bought the rest. But now I’m planning to sell four of the properties — it’s sort of being forced down my throat. There have been ten years of good times with ultra-low rates, but a couple of the mortgages have moved on to variable rates and the properties are losing money.
On one of my properties the rate has gone up from 1.69 to 6 per cent, with the mortgage payment rising from £281 to £1,000 a month. The tenant pays £1,200 a month and, when you pay the tax on the gross amount, that’s going to run at a big loss every month. You become a mortgage prisoner. Even to get the mortgage payments down to £600 I would need to generate a lump sum of cash by selling another asset. My plan is to sell half of my portfolio to reduce the balance owed and the monthly cost on those remaining. But the conundrum is whether I will be able to sell them.
People just aren’t buying. There is a lot of speculation that prices are coming down, and prospective buyers are holding fire to see what happens. So with three of my properties I’ve said to the tenants: “I’m not renewing the contract — we can just keep them rolling and wait and see what’s going on in the new year.” Potentially I could give them 60 days’ notice so I can sell, but my concern is that I’m not going to be able to sell the properties without taking a big hit on the price.
I don’t see how prices can’t go down this year. Some outlets say by 10 per cent; others by 30 per cent — it just depends where rates settle. People are being quoted 5 per cent interest on a mortgage, and even those who have a huge deposit are reading about a correction coming, so their logic is to wait six to 12 months to see whether prices come down. I think that will lead to a complete lack of movement in the market.
If I can’t sell my properties right now I’d rather ride it out and lose money on them for the next 24 months than take a stupid price. If I put one on the market for, say, £300,000 and get offers of £250,000, there’s no way I’m going to take that kind of hit.
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Things have been tough for buy-to-let landlords since George Osborne made policy changes when he was chancellor — you’ve got to pay extra stamp duty and the mortgage tax relief has gone. New legislation for electrics came in last year and landlords had to spend thousands of pounds to make their properties compliant. When the legislation for energy ratings comes into effect in 2025 — all rental properties will have to be rated C or above — landlords will have to replace boilers, spending £4,000 or £5,000 each time, and get double-glazed windows. All these factors are going to mean fewer buy-to-let landlords — there’s no incentive for them any more.
If I am able to sell any of my properties I would use the excess cash to reduce the balances on those remaining and make the payments more economical. I don’t think that the spike in interest rates is short term; I think they might plateau at 3 or 3.5 per cent in a couple of years and stay there. The phase of cheap money is over, so we need to re-evaluate our portfolios.
I don’t think that there is much sympathy for buy-to-let landlords, especially from renters — not many people would get the violin out for someone with a load of buy-to-let properties who is having to sell a few. But having fewer landlords will force up rents. I’ve rarely increased the rent once I have good tenants in place. I’ve had some tenants for eight or nine years and not increased their rent, but I’m being forced to do it now. If the monthly mortgage payments are going up from £300 to £1,000, I’m having to ask the agents what the maximum market value is for the property. If they say £1,500, for example, I settle on about £1,350.
To increase rental supply and give landlords an incentive, Osborne’s policies would have to be reversed. But no government is going to give tax breaks back to landlords when rents are going up and it’s harder for people to get on the property ladder. So what’s going to change is anybody’s guess. If someone gave me £100,000 tomorrow I’d probably buy equities or invest it with a fund manager — there’s no way I’d buy property.
*Surname withheld
