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Disaster for buy to let investors if Berlin-style rent freeze happens

New research shows that some buy to let investors in London could typically lose over £19,000 a year if Berlin-style rent freezes were imposed.

Across England and Wales the typical loss would be £5,274 per year.

Rent freezes are advocated by some Labour and Green Party politicians and by tenant groups. Now this new research by room sharing online platform ideal flatmate, shows the impact such a freeze would have if it were ever to be implemented.

The platform says that German finance minister Olaf Scholz has voiced his support for a five-year rent freeze to tackle the rising cost of living in Berlin so that the city doesn’t “end up like London”. 

ideal flatmate has extrapolated recent UK rent rises into the future, to see how UK rents would increase over five years, but then it has imposed a Berlin-style cap to calculate the losses for landlords.

The implementation of a five-year rental rate freeze would see London buy to let investors lose a total of £7,620 in rent; investors in Newham would lose the most, with a five year freeze seeing a drop in rental income of £19,413.

A five-year rental rate freeze would also see a five-figure reduction in rental income in Barking and Dagenham, Hackney, Waltham Forest, Tower Hamlets, Redbridge, Kensington and Chelsea, the City of London, Havering, Lewisham, Southwark, Enfield and Ealing.

High rental growth rates in other major regional cities mean that investors elsewhere would also lose out. 

Oxford landlords would lose £17,746 over the next five years; in Bristol the loss would be £14,294; and in Manchester and Newcastle there would also be five-figure losses.

Co-founder of ideal flatmate, Tom Gatzen - who interprets a theoretical freeze as a possible saving for tenants - says: “The figures suggest that should such a rental rate freeze be introduced in London and the wider country, the saving for tenants could be considerable. This saving could go some way towards a mortgage deposit and a foot on the ladder, while at the same time helping to alleviate some of the pressure on the rental sector. “

  • Mark Hulbert

    Individual landlords have been financially hammered over the last few years. Rental controls would push further towards massive reductions in property prices, homeowners in negative equity resulting in repossessions, homelessness, economic recession. We need to move away from the politics of envy, and do more to protect and reward entrepreneurs in all sectors. Pulling the rug out from under investors and business people is not the way to build a healthy economy.

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    There’s enough people that flood to the capital as it is…imagine if rents were capped!

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    So the saved moneys would be saved and put towards a deposit? Let me think about it over my latte, before heading out for dinner and clubbing.

  • Paul Barrett

    Err!!
    How many LL would ignore any rent cap!??
    I would be one of them
    So the capped rent would be paid in cash.
    Then I would at the same time collect in cash the extra rent to make a market rent . Fortunately I self manage as a LA would be unable to carry out what would be in effect criminal instructions.
    This would mean a substantial loss of business for LA as LL terminated management contracts to be able to collect cash rents.

    I will commit crime in obtaining my market rent.
    Few tenants will kick off as they know that only by paying a market rent will they achieve a tenancy.
    There will be NO receipts for the additional cash rent
    HMRC will be unable to detect those LL who obtain cash rent in excess of the controlled rent.
    Tenants and LL will deliberately enter into a conspiracy to defraud HMRC
    It will be to their mutual convenience that LL and tenants won't say a thing.
    Both will want to maintain a tenancy.
    The tenant will know that there is no way a LL will let at less than market rent.
    Govt simply doesn't have the capability to detect cash payments being made to LL.
    I predict many LL obtaining safes.
    I predict that many LL will start settling credit card bills etc with cash.
    I predict the tax take from the PRS plummeting
    I predict that many LL will reduce their alleged rents to below the 40% tax threshold to avoid S24 effects.
    I predict that few LL will be declaring many profits as they will only be receiving controlled rent!!
    In short it will be a disaster.
    Of course I was forgetting a collapse in BTL values as lenders will only be able to lend on the basis of controlled rent levels.
    There will be a knock on effect for residential values.
    Bank loan books will be substantially devalued resulting in a bank CC.
    Banks will require cash injections for portfolio LL to keep the LTV within agreed parameters.
    This will bankrupt many LL causing many evictions and consequent homeless tenants.
    Rent controls would destroy the business models of many mortgaged LL.
    Of course the cash rich LL won't be that fussed if they are in for the long term.
    Yes they would suffer a reduction in net rental income which whilst annoying won't bankrupt them.
    50% of the PRS is comprised of cash rich and unmortgaged LL.
    Just wondering where the other 50% of tenants currently letting from mortgaged LL will stay!?
    Rent controls would be an unmitigated disaster for the UK economy as a whole.
    However to avoid all I have suggested I will be ensuring I am no longer an AST LL in about 3 years time
    A GE with Corbyn the winner would see rent controls introduced overnight.
    Good luck to all you LL who intend to stay the course.................I'm out of here!!!!

  • S l
    • S l
    • 19 June 2019 11:50 AM

    In order to cut costs of living, surely they should think of food cost, transporatation costs, clothes, shoes etc etc instead of rent as it is all the regulations surrounding prs that caused the rent to hike up in recent years. How come politicians and council and other authorities like the police or nhs does not have to be accountable when they make mistakes and we as tax payers are forking out for their mistakes and blunder!!!

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    My rents for existing tenants who have been with me for over say 2 years have not increased.
    I only put up rent when BOE put up interest rate for my tenants who had been with me for more than 6 years.
    Simple rules dont listern to LAs

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    In Stockholm rent control has created a massive black market in illegally sublet apartments.

    Paul Barrett

    Exactly!!
    Which is what would happen in the UK.
    S24 was allegedly meant to get rid of risky mortgaged LL.
    Rent controls would have far worse effects.
    I believe now it the time to get out of the game.
    Take your profits and watch from the sidelines.
    If the Tories win a decent majority at the GE whenever that might be then pile back in!
    It seems that there are many GR idiots out there that will vote Labour.
    The older Tory electoral demographic has unfortunately mostly died!!

    If the BrExit Party split the vote then we would have a Labour/SNP Coalition..................a very frightening prospect.
    It would result in the breakup of the UK when Scotland eventually achieves it's objective of a second Independence referendum conditional for a Coalition.
    Mind you if Scotland achieve independence that could leave the Tories the largest party in England and Wales plus NI with DUP support.
    Politics is getting very interesting!!
    Don't see how the PRS will cope.

     
  • Suzy OShea

    Paul Barrett,

    I like both of your comments!

    This conservative maladministration started the the war and theft of LLs in the PRS. we would only be defending our livelihoods if we took the action you recommended!

    The only problem would be if a non-paying tenant would squeal! and i can see them doing that often!

    So, i think you are right. Its time to get out.

    This is what happens when Conservative ministers turn into Labour. they then make Labour even more extreme!

    Paul Barrett

    I'm not sure a squealing tenant would occur.
    The LL would simply get rid of the tenant.
    In other places in the world where rent controls occur LL and tenants tend to conspire.
    Squealing just makes the squealer tenant homeless!!
    Black markets work because of mutual interest.
    How would a tenant ever prove rent in excess of the controlled rent was being paid!?
    LL would ensure no mobiles were turned on.
    Then you run the taps in the bathroom where the exchange takes place.
    This why in Rome there were so many fountains.
    Excellent devices for interfering with sound.
    Obscure all those conspiracies!!
    Of course I am just using my crystal ball!
    You might have a different take on the situation.
    Nobody really knows what will happen if JC gets in.
    But I certainly don't wish to be around in this game if he does.
    I don't have the years left to recover from a Labour Govt.
    If I was 25 years younger I might hang on in there.
    JC is just too much of a risk for me.
    Perhaps we should have voted for Milliband who was relatively benign....................shall we have a peoples' vote!!??

     
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