There is endless wailing about how greedy buy-to-let landlords are snapping up properties from under the very noses of young first-time buyers.
Hardly a day goes by without some hand-wringing politician (usually Labour) telling us that if only it weren’t for those awful buy-to-let landlords more young people could afford their own place to buy.
Who are the culprits?
Many of these avaricious landlords are actually over 60 and most of them probably don’t want to be landlords at all!
But now that they see their savings being trashed by Mark Carney’s quantitative easing (a wonderful euphemism) and historically low interest rates, so they need to find other ways to make their money work for them.
The other options
They can of course put their cash into poorly performing funds with heavy management charges. Buying shares and bonds is an option but it does require a certain amount of specialised knowledge and you have to actively manage the portfolio. Added to this, there is quite a downside risk as they say.
The landlord option
Buying rental property is an obvious solution. You can easily get at least a 5% yield on your money and you’ll probably get some nice capital appreciation into the bargain. And it’s a physical asset – it can’t just disappear, as many people’s savings did in 2008.
But there’s a downside – there’s always a downside isn’t there?
Being a landlord, unless you are lucky, is NOT an easy option. Take one look at the TV series ‘Nightmare Tenants and Slum Landlords’ and you can see what I mean. For landlords whose tenants cannot or will not pay their rent, it is an absolute nightmare indeed, involving months of legal nonsense and Possession Orders and bailiffs etc etc.
Some of the consequences of bad tenants can be mitigated by taking out landlord rent guarantee insurance but even that can’t completely take away the stress.
What’s more, the government has in recent years made being a landlord much more difficult. There are endless legal hoops that a landlord has to jump through to ensure he or she does not fall foul of the law. Fail to properly protect the deposit or even fail to notify the tenants can mean you will not be able to secure a Possession Order if necessary.
On top of all this are the constant management problems involved with being a landlord – repairs, disputes with the managing agents etc etc.
Enter the Reluctant Landlord
So, there are many 60 plus landlords who would far rather just tuck their savings into the local friendly building society or bank like their parents did. But they cannot – unless they want to see their savings dwindle away to nothing.
Late last summer (August 2016) the Bank of England lowered the bank rate to a ludicrous 0.25% from the almost ludicrous 0.5%.
Quite rightly they want to stimulate the economy – although there may be some political posturing by Mark Carney over the result of the EU Referendum (little bit of politics as Ben Elton used to say). On top of this they are going to increase quantitative easing AGAIN. It’s a bit like a heroin addict who keeps needing ever greater doses to keep going.
The Law of Unintended Consequences
This is one of my favourite laws. By stimulating investment by lowering interest rates, the government and Bank of England (and everyone) are virtually compelling many pensioners and pre-pensioners to buy rental property. This demand pushes prices property prices up further and means that young first-time buyers don’t stand a chance of ‘getting on the property ladder’ as they say.
I do think that the Bank of England need to consider whether they are just going a bit too far in this rush to stimulate the economy with cheap money. Apart from anything else it does sound a note of desperation – and that’s never good for business confidence.
Malcolm James Stretten