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Podcast Ep. 45 - How International Events Impact UK Residential Landlords



 00:32

Hello, and welcome to another episode of the essential property podcast. And today's episode is titled How does politics affect residentiallandlords? And the purpose of this podcast was on the back of a conversation this weekend between Paul and I, where I asked thequestion, how does the very, very sad disturbances and disruptions in the Middle East affect UK property? And an hour and a half later, Paulis still explaining to me how it affects UK property. So I said right, come on it's episode time, share your thoughts, your understanding andyour theories, I guess, with our listeners, and I will ask you some questions in terms of how I process that which hopefully will be the same as the questions that our listeners might want to ask as well. So Paul, how does the very, very sad and tragic events taking placeoverseas affect us all the way back here in the UK as landlords?

 

 

 01:28

It was, it was quite a stunning question. And very relevant, I think, in my view, and this is not meant to be me giving a pitch about my politics. Itwas just a very interesting subject, which I thought was relevant at the time. And I thought let's let's talk to our our listeners. And I think politicsmatters with everything. It doesn't matter whether it's Iraq home, in your town, or city, or nationally or internationally, you bought a you raise iton the back of the bombings and the fightings now happening in the Middle East? And I think my immediate answer is that everythingmatters, and we may not immediately see the effect of it day after tomorrow. But it matters in the medium term, the coming months and years,and sometimes long term, sometimes for better, sometimes for worse. But I think you only have to look at the way landlords have been treatedby our own government, and the interaction and the taxes and the changes to know how important politics is. And I think as landlords sometimes we underestimate that we underestimate the role it plays and why things happen. And then more recently, if you think aboutthe invasion in Ukraine, and the spike in energy prices, the invasion in Ukraine was a geopolitical event. So it was overseas, it was driven by politics and the reactions, the Americans got involved, the Europeans got involved, the Brits got involved the defender of Ukraine, and when he wanted to vote for that, or not, it just happened. Andthen all of a sudden, right? You know, petrol prices, oil prices rocketed, what we paid our home in terms of gas, electricity, more than doubled in a very short space of time. So if you're a landlord, if you're an HMO landlord, then you're going to be affected by that. If you'rea tenant, of an HMO landlord, you're going to be affected by that, because the actual analysts probably put up their prices. So that's very, very simple example of what could happen. And when there's a disturbance or an outbreak of war or suggested war, in some part of the world, the first people to react are actually the money people, especially the stock market, those are the first people to react. And you sort of take your cue from there, there's either a sell off, or there's a push up in prices. And you look at well, what what stocks are going up inprice? Oh, it's the oil company. So they've got a leg up in price because oil prices are going up. But property prices or property companies salary may go down in price, because there's an expectation that interest rates might go. So a very convoluted answer to your question is100%, we get affected as residential land, even though there are activities that happen are void across the world or in another country?And how important is that in terms of our planning? If I said on a scale of one to 1010, being absolutely very important, you should think about it every single day of the year. One being don't worry about it. I would say were a good seven. So you should think about it more often than not. And why do I say seven? It's because every action there's a bit of a reaction. It always comes back to money. If you're throwing money to help someone fight a war, that money has to be paid for. And as taxpayers we end up paying for it. And if the government over spends, that money has to be repaid, or more money has to be printed that pushes up inflation and then affects usbecause they push up interest rates. So So we've experienced if you think about it, from Brexit, and other political decision all the way through to what's happening in the Middle East, that includes COVID, that includes Ukraine, locked down, we've been affected in someshape or form, the interest rates, being not been able to rent short stay, we've had to pay more for our prices, because prices haverocketed up because people are saying, Oh, my goodness, during lockdown, I hate this, let me go and buy a bigger property. But government to stimulate the economy, they have stamp duty, there's a rush to go and buy property. So just over that last period from Brexit, all the way through to the Ukraine war. And now, this Israeli Palestinian Iran, we've beenaffected as landlords in some shape or form, to the point where landlords are thinking of selling because they said, I've had enough, maybe I've made my profit, I need to get out. Or it's no longer profitable, because interest rates have gone too high. They've come out of fixed rates, and it's now untenable. So yeah, I will give it a good seven that we should be thinking about it a regular basis in terms of the decisions we make, certainly in the medium term. And the biggest decision any landlord can make is if they have a mortgage, you don't have a mortgage. And it's not a major problem. Where if you have a mortgage and a good 60% of landlords have mortgages, they'd have a mortgage, and you're always interested in interest rate. The other thing is just the local politics, politicians, they have one reason for being, and that's to garner more votes to be voted back into power. And politicians, whether you believe it or not, we'll do just about anything to get the votes.

 

 

 06:37

I think we've certainly seen some examples of that, haven't we in recent years?

 

 

 

06:41


No question. I mean, that's, that's all they do, but just want to get votes. And if they already have people in the bag, let's say, but there's a bunchof people that are sitting on the fence, then they'll write their I say lie or repackage in order to get those people are sitting on the fence to votefor that. And worry about the implications afterwards. And that had seemed to have happened more and more and more over the last few years. And it would seem that every single quarter, there's something extremely political Ellis Kaplan, that has affected our country. And inturn, it's affected property either directly or indirectly, either positively or negatively, more recently, to be more negative, either, passively. So yeah, I think, you know, maybe 15 years ago, wouldn't have to bother by too much. But I think certainly the last, you know, five, plus years, Ithink it's gone up in terms of level of importance to think about the politics of this nation and international politics as well. And

 

 

 07:45

what would be some examples of the different sorts of political announcements that are being made to the different demographics of society.

 

 

 07:53

I think, a really, really obvious one that landlords and, you know, any landlord that had a mortgage, we'll remember, this was section 24,where all of a sudden, you know, George Osborne had said, we don't like the idea of you as a landlord being able to make the interest in pay tax deductible. And one of the main reasons for that is because landlords were thinly economic term it was, is crowding out local first time buyers. So if you imagine you're a landlord, and you see a house that you quite fancy by your rock up, and you're making an offer and accepted in there full knowledge that you can get mortgage, a first time buyer, those out, they've got a limited budget, no flexibility. And chances are, if house needs a little bit work, they're going to walk away, or just won't be able to compete with it at all. And blow dryers born, said we need the first time buyer boaters people are complaining like crazy they can't afford to buy. So how can we give them a little bit more of incentive, let's give them some some money, let's help them with their recovery. But also let's disadvantage the landlords by taking away one of their incentive to purchase and that's, you know, you can deduct the interest from the income. He sort of faded in over three or four years. But it was a very, very expensive exercise for any landlord that wasn't incorporated and had to now workout what the interest liability was going to be to the point that you could actually not make a profit but still end up paying tax. That's asimple example sailing on the side of first time buyers incentivizing safer buyers and disincentivizing landlords and that's a political decision.

 

 

 09:36

Sure. And I guess that was the start of almost the kind of attack, wasn't it on, on landlords or certainly in my career of investing? That was the first quite pivotal decision where you think Hold on a minute. There's something quite significant at play here. And then I guess more recently would be like the renters reform bill, in terms of how that will also generate votes for renters. Absolutely. I

 


 10:00

mean, we as landlords look after almost all of the nation, certainly a strong fifth of the nation or approach it a quarter of the nation, in terms of keeping a roof over their head. So substantial number. Now, if it's perceived, that segment is complaining, and we know there's many good landlord, and there's a handful of Baglan. But if it's packaged, that all landlords are a bit questionable and they're taken advantage of, of renters, then if you can garner a large percentage of what could be 10 million votes, I could swing and swing an election, Icould swing the election. So he didn't say, Okay, why we're coming on your side, we hear you, we hear your pain, let's kneecap some of the landlords, let's give you more rights, let's enable you to bring your press, let's enable you to not be kicked out, you know, without a good reason. Let's give you all these rights. And let's hamstrung the landlords, you know, and then maybe you'll vote for us, unless a political decision as a matter of how it's packaged, it's a bit of a political decision, because people get around the table and say, Look, wecould win office. But of course, I'm not saying that it's not the right thing to do. I live the circumstance, sometimes, you know, politicians do make good decisions. But it's the politics of the decision just to garner votes, which can be a little bit upsetting, because it doesn't make any sense. Now, the other thing that happens on the back of that is that sometimes politicians forget about the behavioural aspect of their decisions. And I'll give you two examples of that. The most recent example was a say lockdown, and COVID. And all this money was beinggiven away, because it was a very extreme situation, people couldn't go to work. And they said, let's cut stamp duty as a bit of an incentive, because it's going to slow down the property market. And we need to keep that moving. But people weren't sitting in their, in their houses and their apartments, and looking around and think I absolutely hate thisplace. It's too small, there's no garden, I need to trade up. Combine that with a stamp duty, and you now have a runaway property market, which was never the intention. When those things were put in place, never the intention. So you've actually made the plight of the first time buyer even worse, and the plight of the renter even worse, because now they definitely can't afford to buy, especially when they're if they're in the south of the country. So the behavioural side, the economics is just letting go of demand and supply, and working out basedon particular theories and what's happened in the past and how as many people have, but the behavioural side is the psychology. Andremember, they used to talk about revenge, travel, revenge, travel was a term that was never had never, ever existed until post COVID.And all of a sudden, people said, what you've told me I can travel?

Well, I'm going to travel as much as I want to now that I'm free to do so. And that was never in the equation when the politicians were trying to work out what they should do what they shouldn't do. And that's the scary thing that decisions can be made. And the implicationsend up being an absolute disaster. And sometimes you things worse off than where you were before.

 

 

 13:04

So I have a question for you. There's two ways that you can go with this, you can take heed of the information that you're sharing, you can read up on it, you can listen to it, you can try to process what the government is doing both nationally and globally. Or you can putyour hands over your ears, c'est la la la, I can't hear anything, and continue to run your business as a corporate kind of ignorance is bliss type strategy, I think is obvious which one you would recommend? But what should the average landlord do? Let's say you have betweenone and 50 properties, you're a small. How do you take this information? How do you process and what actions do you take thereafter?


 13:48

Yeah, that's that's a great question. That's a great question. We have always said on our podcast that we check the view properties and long term investment. And, you know, I think what you're saying and in the final analysis, if you're looking at a property as a lump sum investment, does all this matter in the end? Because if you look at the last 100 200 years, probably prices have always gone up. It'salways outperform the average answer. So and there's always been political machinations over the last few decades as wars and oilcrisis, or property prices still gonna sell? Does it all? Does it really matter? At the end of the day? I think long term? No, it doesn't. I think everything reverts to the mean. So what Allah is interpreted is that if property prices grow by an average of 4%, a year over the last 50years, chances are it's going to grow by focusing for the next 50 years. Now, it's not in a straight line, it's going to be 10%, one year 2% Inthe 10%, and in the minus 3%, another year, but it's an average of 4%. So you could say it doesn't actually matter. But I think what hashappened more recently, is that in the shorter term, let's take short term About a year to two years, some of the changes have been quite intense. So it's very easy for us to say toughed it out think long term think in terms of 10 year tranches, and you're losing 350 pounds a month on a property because interest rates have gone through the roof. Yeah, hold on to a loser in 50 pounds a month, lose seven or 8000 pounds over the year, it'll even out. But if inflation is going up, if your own home, you'll pay more for your own hole. If food on the table is gonna, something has to give, something has to give. So if you look at lockdown how extreme lockdown was. So some of thepolitical decisions have been very, very, very extreme. And the implications of that have been a lot larger than than we've ever seen before. If you're, if you're a renter next to say, you're now paying in the last three or four years, you're probably paying in some areas 30% More in rent than you were before. So it could be consuming over half of your income, whereas before it was only consuming maybe athird of hearing. That's huge. That's huge. So in answer to your question, ignorance is bliss. Yes, I agree. Long term thinking, Yes, I agreewith that. But the short term pain as become more acute from some of the decisions that have been made.

They're talking about, if you're doing Airbnb, you have second home, they're talking about, just

charge you an extra 200% on your house attacks, whether you live there don't if they were to rent it, not rent it, they're taking away your ability to deduct the interest from the income even for Airbnb now. That's now gone into law from 2025. So all of a sudden, those politicaldecisions cut you off at the knees. So the only thing you're depend on is self care, then we make a small profit or a loss every year and hope that the value of the property goes up over 10 years. And that is a little bit more risky than we signed up for. So that's my answer to that question. And and I

 

 

 17:11

think the other reason why it's important is to understand is because I'm sure there's going to be some people that have servicedaccommodation or Airbnbs, who are not going to be aware of that change in interest deductions, or non interested options until they file their tax return. And their accountant says, Okay, you can't claim for this anymore. Sorry. Okay. My profit is no longer what I thought it was.So being ahead of the information, or certainly reading as it as it comes out, is it you know, it is important the end of the day, no matter how bad that news might be in the short term? Absolutely.

 

 

 17:42



Absolutely. And, you know, this whole thing started on the back of your question about the activities in the Middle East. If the war widensand becomes worse, that fuels an increase in oil prices, that fuels inflation, that then means that interest rates are going to come down anytime soon. And that's going to impact your cash flow. If you have a mortgage. If you don't have a mortgage, then, you know, happy days, no problem. Now, you have to think about that. You know, you've got to think about do I fix now? Do I go for a tracker or variable?Do I go for a two year fixed or a five year fixed? And all that is based on the climate, the political climate, the geopolitical climate, the economic climate as a result of political decision? Israel, sort of bombing Iran is a political decision, Iran plumbing, Israel's politicaldecision. So it all stems from politics, they all affects us in some shape, or form. And we have to, if we don't act, or react to this, in some instances, that we can get caught in the crossfire literally, and have a an asset, which is either deteriorating because we're not making any money. But we can invest in an asset. If you think about the politics or the green politics. And let's say there is no more gas boilersafter 2030 or EPCs. I mean, all those political decisions, and then they have implications versus as landlords, if you can't plan ahead andthink, Okay, what do I do? Do I take the hit now? Or do I wait to see what happens if another government comes in changes there? This is stuff here. And now that we have to think about and I'm saying, whereas before, it might have been a three out of 10 in terms ofimportance, I think is more a seven out of 10. We have a new government Labour government, if you think about our friend, Angela Rayner, who's going through the mill at the moment, because she's been troubled by the Tory press, ironically, over property now. Oh,yeah. Well, I you know, I mean, you know, as I said, I'm not going to share my political views, but I think a lot worse has been done. And you know, there haven't been police investigation, but anyway, she comes into power, let's say labour comes into power.

Yeah. And, you know, he may have a little bit of an attitude, and maybe she would want to play

softly, softly with some of the property boys, and she says, No, I'm not having it. Right? You gave me such a hard time on my counsellorcounsellor house. So all you second and third homeowners and you behold landlords, I'm going to vote to squeeze into the picture. That happens. You know, we forget that politics is also humans and they bear grudges, or they bear grudges without without a shadow of a doubt. So I think one of the things that's come out, I think people should think more about it. I think people should understand the politics of promoting for votes. And you got first time via vote, you got pensioner votes, you got the boomers, you've got their votes, you've got the renter vote, there's all these little niches where they want to get votes, so they can win their local elections or the national election. And that has an implication for us, generally speaking, you know, this is a broad generalisation. But landlords are planning for the future planning and retirement. And I would guess, majority probably vote conservative. So because everything we've already got an annualvote, so we can take this a little bit, and also vote for us. But we don't have to rent a boat, because they're a little bit poor. And we want to get their vote, we want to try to help them get house. So let's compromise with our landlords who, whose vote was already in the bag. And let's try and get the renter boat and the first time via vote, which isn't in the back. And that's the way the political game is played. Whether you like it or not, you know, if you've got a local councillor, who, you know, complained to the local MP goes to the Houses ofParliament says that Airbnb is all over the place. There's all these rich landlords coming in and by locals, and my little Sally, who's lived in there in the village for, you know, 20 years come by first house, you know, they scream that enough times, and they'll get change, you know, they'll get they'll get change. So yeah, it affects us. And we do need to think about a

 

 

 21:57

friend of mine sent me a news article only a couple of days ago, of a Conservative MP, who we


actually went to school with many, many, many years ago in London. And they're a local councillor on there, the Conservative MP, and theyare doing a big campaign on why there should be no more HMOs in their constituency. I'm very anti landlord. And so it's going to be a tough day on election day in terms of where your loyalties lie. Because I think, you know, it's very hard to be loyal now. Because we're just not sure of what to do going forward. Where should you get your information from? So if you're looking to get good quality, sort of political information, or political topics we've been discussing, where would you read to get something that's fairly non bias that's intellectual? That'snot, you know, media driven? Where do you go?

 

 

 22:50

Another quick, good question. And the reality is that the media is very partisan, they're very biassed towards the left or the right, so the telegraph is a right of centre pain. So they'll they'll say and talk about things that are supportive of property and they say, you know, canbe down and and a lot is harsh, and you shouldn't do that, then you might have another paper, who are left of centre, that might be a little bit more in favour of kneecapping. The landlords, if we're going to, you know, the economist is very, very good to give quite a neutral view, I get the Financial Times the weekend, and they have a great article this weekend in terms of do you fix your mortgage or not, with all the trouble that's happening around the world, which were interest interest rates going, there are a bunch of in meetings that become YouTube and podcasts that talk about this, and the baker street pop class, and his name escapes me right now. But he gives a very, verygood summary, Mark holder, he has a podcast, resi podcasts, and they are pretty good in terms of given their view in terms of the economics of things and how politics changes things clean, the thing to do is, is to try and keep ahead of the game, you can't changedecisions easily. But if you know it's coming, you can adjust accordingly. And I think that's the key thing. And I think sticking your head in the sand and as you say, you know, sort of put your hand over yours by lateral thinking that's no longer fit for purpose. I think that can bequite expensive, in the medium to long term. And you don't want to look back and think, Oh, if only I fixed it, only I sold it that way, reduce my debt on my other part of the portfolio, I wouldn't have ended up in this in this in this bargain. So that's why I would say but there's lots of information out there. Even chatty PhD will give you an unbiased point of view if you ask the right questions. Whenever

 

 

 24:45

I have this type of conversation with Paul, it always amazes me how much sort of wide ranging knowledge and wisdom and experiencethat he has that you have Paul, which I guess just comes from, you know, years in business years in property. And also, perhaps whenyou've been engaging with sort of mentees all around the country that are doing different strategies and different things and have comeall different backgrounds, and you're working with them to try to work on their portfolio, I know you do a lot less of that now. But if any of our listeners would like to spend some time with Paul, either in a capacity of mentorship, or in a capacity of reviewing your portfolio, wehave set up some services around that. We don't really talk about it a huge amount. But if you are interested in having a conversation with Paul, then certainly reach out. And we can see how we can help you in that department. Just to give a steer in terms of what you want to do next. And to have somebody to actually ask that question to rather than making that decision on your own.


25:43

I think we we've always looked at it in terms of what are our ultimate long term goals? Everything comes back to goals, what is it that wewanted to get a return? Was it a legacy? Was it retirement was it residual income, and when things changed in the sand, it might affect the goal itself? Maybe it's worth toughing it out. Or maybe you have to change your strategy. And that's what we do need advisor we goback to goals and seen some people next week to talk about this very thing at one to do more HMO and I want to talk about how muchmore and how big an HMO and where. And the first thing I ask is, well, why are you doing it? What's your goal? What's your 10 year plan?Or what's your 20 year plan? Are they solid? Why do you have those as goal that's the starting point. And so it's not just about property, it's about your person, your family, your end game where you want to end up sometimes about your legacy? So yeah, we're certainly able to offer that guidance and advisory, if people if people desire.

Sure. Well,

 

 

 26:47

if there's nothing else to add, I think we will wrap it up there. Is there any thought? Is there any final thoughts on this subject? I

 

 

 26:52

think the only thing I would say is that, you know, sometimes I feel like we're all on a bit of a chessboard. And sometimes, as landlordswe're like pawns in this chessboard. And, you know, you have the major players in the major pieces, which is the king queen, we broke the night, and then you have an Bishop and you have these pawns. And every now and again, you know, a good chess player will sacrificea few points in order to get through. And when the other sign, I think that's what policies is like, they use us as small landlords and theysacrifice us to win the bigger prize, and the bigger prize for them is to get those votes of people they wouldn't ordinarily get. So there's sacrifices sometimes. And I think if you, if you recognise that, then you know how to defend yourself somehow, and know how the game isplayed. So that's, that's probably my parting word. You know, if you haven't played chess for a long time, maybe start playing again, or remind yourself of different moves. The night was always my favourite piece. But yeah, were like pawns, and we don't want to get bulldozed over by some of the larger players in the market. So that's what I would say. And suppose in closing for me, is that I do believe long term, everything does revert to the mean, which means everything goes back to the average trend. So property prices do go up byan average of four or 5% Over the last 5060 7080 100 years, I think it's going to continue that way. So even though there's these littleblips, when we look back at them at the time, they felt horrible, but over a long period, you look back to them there was like, you know, blood on the landscape. So if you can afford to still continue to think long term, I would say do so well, you can make that a little bit more comfortable by keeping in touch with the economics and the politics of the country and the world now.

 

 

 28:45

And I guess a final thought from my side is whilst we're here discussing the sort of tragic events happening overseas, and how that affectsour businesses and us as landlords, we should also


just note how much that is affecting the people on the ground in those locations. So tragically, and that we just hope and pray that it resolvesitself in some shape or form as quickly as possible just to reduce that all the trauma and all the tragic events that are happening for those poor people.

 

 

 29:12

Yeah, absolutely. 100% agree with that. Okay, so

 

 

 29:14

until next time, keep listening. Keep sending your questions and your feedback on the podcast. We'd like to hear from you. And we will see you guys soon.

 

 

 29:28

We hope you enjoyed today's episode, and if so, please hit subscribe and share with those who you think would enjoy it too. To get in touch with Paul and Amanda directly. Please visit their website, www dot essential property options.co.uk For more information we look forward to sharing with you on the next episode.

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