As yields were gradually eroded by costs, one landlord faced a tough decision
Source - Daily Telegraph 20/10/24
20 October 2024 7:00am BST
Patrick and Vivien Robinson saw buy-to-let as a way to provide a steady income to see them through retirement. So 15 years ago, Patrick raided his pension pot and they began buying small, modern, easily rentable houses.
But their promising idea has backfired. The couple, both 71, did some simple maths and calculated that by continuing to rent out the properties they would only be around £1,000 better off per property each year than if they sold up and put the money in a savings account or fixed-rate bond.
Over the course of 2024 the couple have gradually sold off the six two-bedroom properties they once owned, some in their home town of Nantwich, Cheshire, and others in nearby towns in Staffordshire. The final sale is currently going through, although not without some regrets.
“That is six fewer rental homes out there,” says Patrick, who worked in IT and adult education. “Where are all the nurses, health workers and police officers going to live?”
It also leaves the couple facing tough decisions about how best to secure their future finances.
“We saw it as a sensible use of the money, taking a cash sum and investing it in bricks and mortar,” says Patrick. “It was primarily for an income stream, but we thought we could sell them and convert them back into capital if we needed it. You never know what sort of care you are going to need.”
At first the plan worked well. Patrick and Vivien kept their homes in good condition, had few problems with their tenants, and were earning annual yields of around 7pc – far more than their savings would have realised in the bank in the era of rock bottom interest rates.
Over the years, however, those yields have been eroded by increasing maintenance costs, and by the cost of regular gas and other safety certificates. Interest rates, meanwhile, have been increasing.
“A job costing £200 has increased to £450 in a year,” says Patrick. “A gas service was £85, and is now £125; insurance is another £150 more. The list goes on. Eventually we worked it out – it just wasn’t worth it any longer.”
Meanwhile, there were fears the Government would increase capital gains tax in the Budget, though this has been played down. Patrick has also been deeply hurt by the widespread demonisation of landlords, depicted as money-grabbing rogues – when all he wanted was a safe and comfortable retirement.
“It was becoming a very toxic environment and just too much hassle,” he said. “We are by no means the only people who are taking this kind of action.”
Recent research by specialist loan company Octane Capital suggests that amateur landlords exiting the sector in the face of falling profits will take 383,600 homes out of the private rental sector, equal to a 14pc reduction in stock.
A separate report by lettings platform Goodlord found that one in three landlords had tried to reduce their portfolios over the past year.
One in five plan to do so over the next year, citing concerns including the Renters’ Rights Bill which will abolish no-fault evictions, as well as new energy efficiency standards which could prove hugely expensive for owners of older properties, and higher mortgage costs squeezing profit margins.
The money the Robinsons have realised – which, says Patrick, is close to a six-figure sum – is now in the bank and is earning interest of between 5pc and 5.5pc per year. Vivien, who ran a photography studio and home staging business before she retired, would like to use the money to buy a single, larger property – and take in a lodger.
This would take advantage of one of the few landlord-related tax loopholes that successive governments have not yet tightened. The Rent a Room Scheme allows homeowners to take in lodgers and earn up to £7,500 per year tax free, which is equal to a rent of £625 per month.
Patrick is less convinced by the plan, fearing a loss of privacy, but the couple, once so certain of their pension arrangements, are now having to think about a Plan B – particularly now interest rates are falling and their income from savings will inevitably start to drop too. They are certainly not able to lavish money on enjoying themselves.
“We are not going on cruises on anything daft like that,” says Patrick.
Meanwhile, he is concerned not just for himself but for all the renters out there now chasing a smaller supply of rental homes. The average rent in England is now more than £1,400 per month, according to Goodlord, up 5pc in the past year thanks to the imbalance between supply and demand.
“It is bad for everyone,” says Patrick. “Nobody is winning.”
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