News and Press releases

Why renting second home is best way to save cash – and face

14/05/2009

SO, NO more plasma-screen television sets, silk-covered cushions or other luxury items from the infamous “John Lewis list”. Just mortgage interest, the cost of essential repairs and maintenance, council tax and legal expenses.
Most voters would probably say that if MPs had restricted their claims for second homes to the basic necessities they wouldn’t now be experiencing the public opprobrium.

However, things do seem to be moving in the right direction, with one prominent MP, the Lib Dem leader, Nick Clegg, justifying a £760 claim to repair the garden path of his constituency home in Sheffield, saying: “Repairs made will have affected the value of my constituency home. That is why I have always said that when I sell this house I will give any profit back to the taxpayer. It should be the taxpayer, not me, who benefits from any increase in the value.”

While it seems a magnificent gesture that any equity gained from the eventual sale of this property should go to the Exchequer, it would be much better for everyone if Mr Clegg – or any other MP – rented rather than bought his “second” home because renting is less expensive than buying (when all the variouscosts are taken into account) and the only real beneficiaries of buying rather than renting would be conveyancing lawyers. When you take away what is, for most people, the raison d’etre of buying a second home – a capital gain – it becomes pointless.

The rental option is so obviously simple and less expensive that it’s a wonder nobody thought of it before. Well, I did actually – two years ago when concern grew about the allowance used by MSPs to buy second homes in Edinburgh and, potentially, sell them on at a handsome profit (which some went on to do). It was estimated that 48 of 129 MSPs claimed annual allowances of up to £10,600 to pay mortgages on homes in the capital. I suggested a saving of £6,640 per person a year could be achieved by two MSPs sharing a well-furnished two-bedroom flat as opposed to the costs of buying a similar property. Based on 48 claimants, over a four-year parliamentary term, the saving would be £1.27m.

It could be argued that Westminster differs from Holyrood because the distance between parliament and the constituency homes of many MPs is so much greater and, therefore, so are their accommodation requirements. Fair enough, but the case for rental is still strong for MPs. There are one-bed flats within walking distance of Westminster (including Dolphin Square) currently available at rentals of about £300 a week. Because of the long summer recess, an MP actually needs to rent for only 40 weeks of the year, thus the cost would be about £12,000 a year – just half the current second homes allowance.

MPs could rent these privately (some already do) and claim back rent, or the government might consider building up its portfolio and rent flats out – free of charge – to MPs requiring London accommodation. Prices are cheaper than for years, so a return to capital growth will eventually turn these into a prime public asset.

Probably the greatest case for rental is more abstract. For more than a year, first-time buyers have been unable to get on the housing ladder because of a shortage of mortgages. And they were previously kept off the ladder by soaring prices. If MPs were to lose their vested interest in double-digit house price inflation, perhaps we could all start taking their concerns for first-time buyers more seriously.

• David Alexander is head of letting company DJ Alexander, which manages more than 3,000 properties in Edinburgh and Glasgow

THE SCOTSMAN, 14 May 2009

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