Suburban sweep part of new rental landscape - David Alexander comment

Last week’s column focused on the return of the “reluctant landlord” to the residential property market in a post-Covid-19 society.

Post-Covid Britain will be uncertain – and signing up to a tenancy takes on a new appeal, says Alexander. Picture: Jon Savage.

But what will “reluctant landlordism” actually involve? You could, of course, ask folks who were members of the “club” back in 2008 when the banking crisis led to a substantial diminution in the availability of buyers. But the parallels between then and what is likely to happen in the near future are somewhat different.

Although it took some time for prices to recover, the aftermath of the financial crash is likely to be seen, in retrospect, as relatively benign compared to what we may face – for an indefinite period – in a few months’ time.

Back then what might be called “natural owner-occupiers” (who could not find sellers) became landlords to tenants who were themselves “natural owner-occupiers” but who, because the normal market had stalled, could not find the right home to buy. But eventually the crisis passed and most of those affected returned to the home-owning fold as soon as possible.

The difference facing us is that more people who switch from owner-occupation to private tenancies may not be in the same hurry to return to the former. Post-Covid Britain will be an uncertain Britain and in such a climate signing up to a tenancy – which does not require a substantial financial outlay or long-term commitment – takes on a new appeal, especially to those whose jobs might not be secure as they once did.

Equally, younger tenants who, at the beginning of the year were contemplating finding their first property to buy, may now think they can afford to continue renting for another year or two on the basis that house prices are unlikely to grow (and possibly become out of their reach) any time soon. This is an attitude as likely to appeal to those in secure employment as to those unfortunate enough to be in riskier elements of the economy.

Despite the gloom, therefore, this should be encouraging for frustrated vendors who reluctantly become landlords. Even better, the Covid-19 experience has suddenly added value to properties with a garden, or even a bit of exclusive open space.

Changing preferences

Therefore tenants who were once entirely focused on living in an inner-city flat might now prefer a “back and front door” property. In Edinburgh, for example, this could see more people seeking out a two-bedroom terrace in one of the suburbs (or even a commutable market town) rather than a top-floor flat in Comely Bank, up to now one of the prime rental locations in the capital.

However, even if there is a healthy demand for renting properties usually associated with the owner-occupier market, reluctant landlords need to follow some basic rules. Perhaps the most important is to seek the permission of one’s mortgage lender.

If not this will invalidate buildings insurance (leaving the owner with a huge bill if the fabric of the property is badly damaged by fire or water ingress). Presuming the lender permits the property to be tenanted, the owner will, almost inevitably, require to pay more for a revised policy.

Most people who become reluctant landlords do so to cover the loan costs of an unsold property. However as happened after 2008, some may find rental income actually gives them a surplus. Any profit after claimable expenses will need to be declared to HMRC.

Fines are already substantial for landlords who fail to comply with the rules – and I can imagine them becoming tougher as The Treasury tries to claw back the estimated £100 billion a month it is spending on furloughs.

Finally, a word of advice for amateur landlords who may be tempted to “check” on their tenants if living close by. Providing they act responsibly, tenants enjoy security of tenure in Scotland, which means the right to a private life.

This may mean a reluctant landlord having to accept the sight of curtains still closed at noon (a typical past complaint). However should a serious problem occur, be assured your agent will soon let you know.

David Alexander is MD of DJ Alexander

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