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Thinking Cleary: Alan Cleary weighs up becoming a landlord

Alan Cleary, managing director at Precise Mortgages, argues the financial and legal framework for becoming a landlord has never been more complex.

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My daughter is flying the nest and moving to The Big Smoke. Having qualified as a teacher last year, she has been working in the West Midlands, living at home while diligently saving for a deposit for her first flat. 

Seeing her brother living and working in central London, she is longing for the bright lights of the city to replace the drudgery of suburbia. Having been young once myself, I understand the attraction. 

I have been employed in the mortgage market for nearly my whole working life and like to think I know quite a bit about both products and housing. However, I have gained a new perspective on things since my daughter started to investigate where she would live come the start of term. 

Even if she had saved her entire teaching salary for the past year and I had gifted her £75,000, the combined total would be insufficient to put down as a deposit on a property near the school she will be teaching at. 

Of course, I knew that would be the case but, nonetheless, £500,000 for a doer-upper in Kilburn? I also notice just how far Hampstead has spread: when I lived in Kilburn 20 years ago, it was called Kilburn, not South Hampstead. This is surely a breach of the Properties Misdescriptions Act.

So I started pondering whether I should buy a property that both my son and daughter could live in.

After some thought, I was not convinced that buying in London right now was sensible. Probably better to wait until we knew what the impact of quantitative easing unwinding would be, as I have a suspicion that house prices (alongside many other assets classes) have been inflated as a result of loose monetary policy. 

In addition, an interest rate rise is expected in the foreseeable future and I am interested to see what the outcome of that will be. 

But my next chain of thought was that, if I was to treat this as a buy-to-let rather than a second property, and was to raise a mortgage that would be a regulated buy-to-let, this would drastically cut down the choice of mortgage products available. 

OK, this might still be workable, but what about the summer Budget? The tax allowances available as a landlord are being phased out. While I do not believe the changes will have much bearing on whether buy-to-let is a good investment or not (and, as I am thinking about it as a home for my children, the tax issues become somewhat irrelevant), what matters is the notice the Chancellor has given to landlords. I doubt if the Government wants to manage the private rented sector but I believe the Treasury would like to enjoy the successes of the market, increasing its revenues in the process. 

One of the last considerations I deliberated over was the fact that I did not want to be a civil servant. Never had, never would. However, the recent announcement that landlords will face tougher penalties (including prison) if they persistently allow illegal immigrants to rent their property effectively means they have become an extension of the Home Office in policing immigration. 

By this point my motivation was waning. Buy-to-let has never been an investment that one should enter lightly but the financial and legal framework has never been more complex. Indeed, the case for taking professional advice before becoming a landlord has never been greater. 

But I need not have worried. After I had spent days thinking about the pros and cons, my daughter told me she would much rather rent a room in a shared house than live with her brother.

*Some of the above has been exaggerated slightly for comic effect

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  • Joker turned broker 13th August 2015 at 3:02 pm

    Alan makes a fair point about watching for the impact of quantitative easing winding down and the expected base rate increase on house prices, but economic fundamentals will still override both in my opinion – end of the day, there aren’t enough houses to meet demand so the inflationary pressures on house prices will be at best, tempered slightly. People need homes and there aren’t enough.