Tenant Choice, Perceived vs Actual Risk

Landlord Discussion
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I am writing on the subject of Landlords choosing Tenants and, as always I’d like to strike a conciliatory note between two interdependent parties and try wherever possible to dispel myths and challenge any prejudice with data. My apologies, this is more like a blog post/ essay than a remark, but hopefully some of you will find it interesting. I’m always grateful for your additions and comments.

I’ve read a lot of really emotive input from both sides on the matter of government financial subsidy to tenants. It is a really complex field and has changed significantly even now as I type before the controversial Renters Rights Bill and the speed at which it has changed often leads to misunderstanding based on legacy conditions for either renters or landlords and I think a forum like this is the ideal place to understand each other better. Whilst it isn’t necessarily a landlord’s job to keep up with this information, it can be an advantage and may allow for better situational judgment.

There are horror stories from both sides and a tendency to confirmation bias and extrapolation, I’d like to point out that these apply in both subsidised (colloquially DSS) lets and in those where people are working. So to begin I’d like to make the case that a legacy benefit/UC/disabled tenant may not be quite so much an actual risk as a perceived one compared to the overall risk. I am not dismissing horror stories, simply pointing out some information that suggests all lets are a risk and examining where some of the social disparity ideas may have come from.

Working Tenants and the Idealisation of the Professional Couple

According to www.theindependentlandlord.com
Despite the rise of platforms like this one and the use of Gumtree or other classifieds 43% of tenancies are still draw up by letting agents.

Historically, and often still the ‘Professional Couple’ were heralded as the perfect tenants because they had two full time incomes (often) and they were portrayed by letting agents as being wholesome early to bed (and rise), no trouble, no mess. I will not need to tell some landlords here that this is not always the reality, but we are eschewing anecdotal evidence for now.

When letting agents are involved there is a financial incentive to pursue this group and they were sold to landlords as idealised because they benefit the agent, they move on (unfortunately I don’t have a statistic) but this demographic are mobile. They buy, they have babies, they break up, they move for work purposes, of all groups they are the least tied to an area and they move.

This used to mean a payment of around £450 (depending on the area) from prospective tenants and a further sum from landlords going to the letting agents for every new tenancy. The combined figure was alleged to cover referencing and viewings, the tenant fee has now been abolished reducing the incentive, but landlords still pay a fee for the service and Open Rent among others are illustrating that this is probably somewhat over inflated, except in the case of property management which is a different matter.

My generation, and those younger have been raised with a very relaxed attitude to debt, financial products like Klarna, 0% credit, payday loans and even some companies are using spend as you earn as an incentive for job applicants. We are all encouraged to consume more than we ought to and to borrow rather than spend our own money.

According to www.fincap.org.uk/

  • Income strongly influences borrowing behaviour – low-income households are less likely than those with higher incomes to use consumer credit. However, they are more likely to access high-cost credit when they do borrow, often simply to make ends meet.

  • Psychological factors shape borrowing behaviour, but not as much as socio-demographics – psychological determinants seem less important in helping to explain borrowing behaviour than other personal characteristics, such as income.**

The ‘Professional Couple’ then is likely to be in the category of using debt as a tool, they are comfortably earning and agile to change. However I think Covid has taught us all of the false security this can bring. The credit check may show a person as paying off debt every month or satisfying what appears to be an affordable debt, but in a change of situation, including those listed all of that may change. The credit check may not show low intensity borrowing such as Klarna. Low income families/ UC claimants are significantly less likely to use these services and instead utilise the government options available to them which may be grants or are far less risky and interest free.

According to Joseph Rowntree
‘Recent estimates suggest that around a quarter of the adult population has less than £100 put away in savings. And when people enter poverty, they are likely to fall into debt or arrears on basic household spending or rent’

A person or family utilising subsidy (Tax credits/UC/Disability) to pay their rent is likely to have the skills to manage a small amount of money, or have support to do so because they have done so for some time. The money paid by each of these is sufficient for a reasonable life. It will not stretch to extravagant luxury (abroad holidays and frequent technology upgrades) but it comfortably covers wholesome food, sufficient clothing and activities for families in addition to rent and bills even in comparatively expensive areas. A person used to managing this level of funds may be less likely to get into difficulty than someone who earned well, accrued debt and had a change of circumstances.

A family (especially with schoolchildren) will be more likely to want to stay, to maintain the property and create a home and embed in the community. A person with disabilities is likely to be supported to maintain the property and if relevant to manage their income. In both instances the landlord is potentially saving on tenancy renewal hassle and expense including redecoration, in some cases tenants will happily carry out this function. In addition a tenant who stays is known to the landlord, their risk becomes easier to assess and open conversations are more likely at earlier instances saving everyone hassle and expense if something goes wrong either in terms of reparations or financial turbulence.

Affordability lets this group down, but I would challenge the idea that 2.5x the rent as income is necessary, for our area that would be £4,500 per month and for that income a tenant would own a property. It just isn’t necessary, unless a person is used to a consumer lifestyle based on that income, in which case they may have chosen to take on commitments equating to their income, but a subsidised tenant is likely to have low cost or free hobbies, a local holiday and probably not consider some of the many costs taken for granted by higher earners.

Another factor that created reluctance to rent to this group was the Local Authority advice that tenants must stay until bailiffs arrived or they would be considered to have made themselves homeless. This is no longer the case and legislation has been in force for some time now meaning LAs have to create a plan at the beginning of the notice period and have somewhere for them to stay, if you have not been advised to include this in any notice correspondence I would advise you to do so as some tenants are not aware of this change and doing nothing may make the situation more difficult. Action may involve negotiation with the landlord, but they must not allow things to escalate as they previously did.

The basic premise of my argument for consideration is whether as a landlord you choose to make a socially driven ethical judgment about a person, you may be doing so on the basis of a short hand heuristic which has been peddled because it benefitted intermediary letting services and lined their pocket and because of ingrained societal prejudice and not based on an accurate risk assessment. There are scare stories, but they exist for all tenant types.

You may prefer shorter term tenants, and that is fine. I am not imploring you to make a different choice, but I am asking you to know your bias, understand it and explore whether it is concurrent with the actual data or if it’s derived from the loud chatter of companies that stood to make a profit from it and whether it is being satisfied by confirmation bias towards horror stories that support it. They exist for professional couples too.

Always grateful for your feedback, challenge and thoughts (and any additional statistics)

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Been discussed numerous times on here so worth searching the forum for some insight on frequent forum user opinions.

Government data presents one group as a much higher risk than the other which aligns with the stereotype.

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Evidence this doesn’t happen? Ask some landlords (and tenants!) here and I think you will find that it most certainly does!

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Mark10 or anyone else, have you got the statistics for section 8 evictions? I tried to find them to back up my point, but wasn’t able. I would be really interested to see if more tenants in receipt of subsidy were given section 8 rather than 21.

I think my point is that on here, or anywhere else for that matter there is a self selecting bias for a story. Uneventful tenancies are the majority, but no one writes about them (why would you?).

There are also plenty of anecdotal stories of late night parties, drug use and damage done by people who work full time too. My point isn’t that the professional couple is a bad choice, they aren’t not at all. It’s just their status has been artificially inflated by a perverse incentive.

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Unfortunately due to the forthcoming abolition of section 21 and introduction of RRB many Landlords will be reluctant to rent to anyone and simply choose to sell.

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I agree with Mark10 first post about government data. I would also add mortgage and insurance companies use this or their own data to manage risk. I used an online mortgage broker. They work like any price comparison website. When making my mortgage applications, they ask what type of tenants I will be letting the property to.

  1. Employed/self employed
  2. Students
  3. Unemployed/employed and in receipt of benefits

Option 1 always returned the lowest interest rate so I went for option 1.

Landlords always get the negative headlines when it is the mortgage and insurance companies

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If we see the main problems a tenant can cause as damage, non-payment of rent and ASB, then there may well be data somewhere on the proportion of breaches by working/professional tenants vs those dependent on benefits, but Ive never seen it and I wouldnt expect it to be available to landlords any time soon. I therefore assume that any tenant may get into financial difficulty and any tenant may cause accidental damage.

So the issue then becomes their ability to pay arrears or compensate the landlord for damage. Those on low incomes or who have no funds of their own are rarely able to do so and there is little point in the landlord suing them as the courts will award a nominal amount per month which even if paid would take many years to repay in full.

There is then the issue of UC/housing benefit. Despite Government rhetoric about this being guaranteed payments, there are a vast array of issues for landlords, such as claw-back in a wide array of circumstances, delayed payment, stopping payments for change of circumstances, Officers refusing to talk to landlords, not covering the full rent etc. Many landlords with small margins would not be able to cope with these issues.

I believe that both of the above are legitimate business considerations when selecting tenants, although it may become impossible under the RRB to make selection decisions on this basis.

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Absolutely spot on David122

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During Covid I changed demographic to take ‘ professionals’ / benefits vs students .
Issues
Truss tanking the economy meant people on UC could not carry the increase.
Blue collar workers could not carry the rise either .

I’ve learnt it’s not about being professional but background education etc

The tenants that demonstrate cluster B traits or disorders are more difficult ( no matter what the background - students , UC , prodesssionals )

There are more of these issues in the lower socioeconomic group than the educated more affluent raised set.

The newer generation that are international professionals are rude and entitled

It’s not just about rent , it’s about the way you are treated by the tenants.
You also need to manage expectations.

I don’t chase conflict but I’ve learnt that tenants challenge your boundaries and you have to set your boundaries down immediately .

I’ve noticed , anecdotally, with the internationals , they leave when they can’t get away with whatever they want.

Of all the tenants I’ve found educated professional internationals difficult and the uneducated blue collar workers .

Knowing this going forward with upcoming legislation I’m going to narrow who I choose as if they leave immediately I’m going to have high tenant turnover
The AST kept them in situ for 12 months which meant I ran with the academic cycle

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David22 you make a very fair point in your assessment of risk, I understand why you would perceived the variables in this way.

In return I would challenge the baseline premise that someone claiming subsidy towards rent or being a working professional is fixed.

It’s not in the case of working professionals, many events can alter this and suddenly; health, pregnancy, job market, poor management, global pandemic, caring responsibilities (health of significant others) changing career or other employment/financial risk etc. The point I made earlier is that a sudden shock to income is typically as difficult, or more difficult to manage than a stable but low income.

Many tenants claiming subsidy towards rent have at other times been in gainful employment, may still be (but now part time) or will do so again. We cannot think of them as a group of people or enduring characteristics, just a group of transitory situations (for better and for worse).

Often those making a claim are parent(s) or unwell/disabled. It is not the job of landlords to be social services, I accept that being an expert in this field is not part of your remit and is difficult, like all legislation and funding it’s constantly changing.

However I would argue that in the absence of concrete and discrete data there are character judgements being made that may not fit as definitively as they are being portrayed, it’s just that social attitudes and value judgements may be filtering in too. That’s ok by the way everyone can have an opinion ( I don’t want to start a brawl) but it needs to be owned and I would encourage reflection on why it’s held based on more than a handful of (really awful) stories, the odd negative encounter and the reinforcement of others.

A_A makes an interesting point based on their anecdotal experience. There are a myriad of studies suggesting maternal years in education are one of the best predictors of childhood outcomes (Google and pick a study there are loads.) Perhaps it’s safe to assume that this might also be predictive more broadly of how people manage unexpected or uncertain situations. It’s speculation but maybe it could be a better predictor of whether someone would leave you in the lurch, especially since education of some form can be accessed free in this country so it’s based more on motivation.

I would assume, rather than job or income that savings or social support would actually be one of the better predictors of the ability to manage an unexpected situation, of which we could include everything from accidental damage to a life changing circumstance.

I don’t feel there are any indicators based on these factors that landlords are looking at. Maybe they shouldn’t, perhaps it’s too much work or too intrusive.

Again I’m not necessarily saying don’t make social value judgements, we’re all human. I am saying own them as social value judgments don’t believe (or try to convince others) that they are based on risk data because so far none has been provided.

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David79 You make an interesting point about sales due to ending section 21. I’m uncomfortable about the removal of this too. I feel there may be a perverse incentive for poor interactions,frustration and potentially hostility.

However I’m also unsure what reason a landlord could want to revoke their property outside of those being prescribed as legitimate. There is quite a long list, can anyone actually think of anything that hasn’t been covered?

I also wondered at what point the amount of landlord sales tips into affecting the first time buyer market and lowering the number of renters? I think this might be an over optimistic perspective from me, but if anyone has data, or knows where to look.

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I noticed my link to an official website has been flagged review and doesn’t seem to have been posted(unless someone can see it).

There was another post on here suggesting that posts with official government document links were being held for approval. I’m not sure if this is all links or just those from gov websites, I don’t know if it’s happend to anyone on here for some time?

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Hi A_A

It’s interesting to hear about boundary settings with tenants.

Would you like to explain further? I completely agree the quality of the relationship is really important. It’s an important asset as a property to one party and a home to the other.

I think intermediaries can be helpful, but can also damage the quality of trust between both landlords and tenant as information can get lost between the two.

How do you begin a tenancy?

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I agree with your point about people receiving benefits not being in a “fixed” situation, which is why I was careful to use the term “dependent on benefits”, which is still not adequate, but intended to mean those with no earned income. I’m aware that it doesnt adequately cover people in receipt of enhanced benefits, such as PIP or state pension which would need separate consideration.

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What do you mean ‘ how do I begin a tenancy?’

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A lot of the new grounds are discretionary so may not be successful in re gaining possession of a property add to this the expensive and lengthy court process and personally I’ve decided its just not worth the hassle and have decided to sell .

I’ve only used Sec21 once in 18 years. It did end with a baliff eviction , the tenant hadn’t paid rent and so I used section 8 as well but they made just enough payment before court in order to defeat the Sec8 but with Section 21 also served ,possession was granted.
It was a lengthy process even then (12 years ago) Sec 21 has been a gaurantee that I could regain possession of my property and so took pressure off choosing the right tenant. Importantly Landlords could give people the benefit of the doubt , something I now feel unable and unwilling to do.

Not sure about first time buyers ,Landlords selling up , property prices etc. If the population continues to grow faster than the available property to buy or rent then I think demand will continue to outstrip supply. If the millions of people renting property suddenly were able to buy those millions of properties, next year people coming to the UK for work, coming to the UK legally or illegally, leaving home to study, leaving home to gain independence, moving areas for work etc would all need somewhere to live and a lot of people cannot secure a mortgage to buy a property and so need to rent.

The current government have pledged to build 1.5 million new homes .They(the government )won’t lay a single brick so it’s down to private businesses developers who will only build if there is a profit from anything they do build(no profit , no building). Even if this impossible target could be met over the next four and a half years, at current levels the population, by then, will have grown by 2.5 million so the housing crisis is only going to get worse.

There is also EPC C ,new tenancies from 2028 ,all tenancies 2030 . There is a possibility some LLs will decide it’s not worth the investment in order to achieve a C rating and choose to exit the sector. The average home in the UK is rated D. EPC ratings seem to be very hit and miss and I’ve had different measurements and scores for the actual same property which gave a worse rating than the previous one. I had to point this out afterwards when I’d studied the EPC , resulting in the certificate being updated to the correct (??) rating . I would think some mortgage providers will not want re mortgage rented properties that are below C rating , which could lead to problems in the future if a Landlord needs to change mortgage product and providers, for instance if a fixed deal has ended and interest repayment cost has increased (usually by quite a significant sum)

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David122 I want to absolutely commend you on your diplomatic tone particularly in relation to government subsidies for rent and other contributors too. It’s really great to grapple with this stuff in a situation where there is openness, collaboration and understanding. I think there are a lot of problems for both sides and a broader social problem of people needing homes.

A_A Thank you for taking the time to respond so fully, my question about starting a tenancy related to whether there were explicit ground rules and expectations, not necessarily contractual ones but if there was blunt openness or negotiation around the sort of interactions you expect (or your tenant might) behaviour for one tenancy might not translate to another for example tenants might be praised for carrying out small maintenance in one but might upset another depending on the level of control required by the LL. I think you have answered quite well in setting out your style initially.

I will mention I’m a little concerned about the level of detail, only for you and your tenant’s personal details.I have no idea who you are or where, but it’s a lot of specific information and may be worth redacting some, just to ensure someone closer to you can’t identify either party.

The point I made about maternal education was unclear, I apologise. It was a broader point around the pursual of (any form) of education/information being a positive indicator for any type of tenant (particularly in the absence of work) but I leave it open only as a suggestion as it’s a clumsy extrapolation.

The point about psychometric testing is too far for me, it feels too personal anyway but there are no consistently reliable measures, it comes back to circumstance and experience in addition to the quality of relationship (LL/T) There might be a good argument, I think for landlords being very clear about expectations from the point of advertising.

Do LLs want basic things done by tenants, or should tenants not touch any fixtures? Eg fitting curtain track where it has aged, renewing bath sealant. Some tenants can’t but others may see this as being helpful.

Does the LL want to know about everything? Performance of contractors, minor issues not yet needing attention etc.

If they looked through the window (not a practice I’m condoning but it happens) would they expect it to be immaculate or at the other end is it that only the LL property matters.

Upfront acknowledgement of expectations and preferred contact method/times might dwindle the numbers slightly, but if you have a lot of interest it might narrow down tenants to similar thinkers and lead to better communication, relationships and tenancies.

A person specification for tenants might help everyone.

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It seems what we need then are two data sets.

We need to know year on year a breakdown of S8 demographics.

We also need to know local authority success rates for responding to s8 and s21 requests for help (since their obligations changed) alongside those demographics too.

I’ll see if Shelter collects this information, but if anyone has access too, or knows of other organisations that might, please do post a link.

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these posts must be the longest I have ever seen, some so long I slid under the desk, When choosing a tenant I go with my gut feeling, it is not always about money .(short post)

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Spot on Colin, we’ve started writing essays!

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