The Hammond Budget November 2017
David Lawrenson of LettingFocus.com evaluates the budget and breathes a sigh of relief that it was not worse.
Well, the sigh of relief is due because the three year war on landlords by the Conservative Party was not continued too much further in the Budget, despite some Tory MPs who wanted to up the pain: See our last blog for more: https://www.lettingfocus.com/blogs/2017/11/neil-obrien-mp-has-plans-for-more-landlord-taxes-and-mortgage-hikes/
But there was still quite a bit in the budget to mull over and there was an interesting change on capital gains tax for those who have moved to a company structure for their let properties, which could pose more problems if extended in the future.
Long Term Tenancies and Section 24
The Chancellor said he would incentivise landlords who offer longer-term tenancies to those who want them. But what form will that incentive take? Right now we still await the detail.
It would be nice if it meant exempting landlords from Section 24 if they are willing to offer longer tenancy contracts. Experience across the Irish Sea suggests a reversal to Section 24 could come one day to the UK. In Ireland, an exemption for ‘social tenants’ was introduced and this led quickly on to the full restoration of landlords’ rights to offset finance costs when calculating profit. Just don’t hold your breath waiting. In this landlord bashing environment we now live in, you could have a long wait.
At least Hammond ignored Shelter’s rather daft proposal that all tenancies default to long-term ones – a thing most tenants don’t actually seem to want, (lots of research on this), and most lenders don’t allow anyway. And he is still not for following Scotland’s crazy introduction of indefinite contracts / no right to repossession – one of many measures which is already decimating the size of the private rented sector north of Hadrian’s Wall and causing homelessness.
Double Council Tax
One new measure was to give councils the ability to charge double council tax on empty homes.
Up to now, councils have only been able to charge an extra 50% on top of normal council tax if the property is empty for two years or more. This move will mean that double council tax can now be charged after two years of a property sitting empty. We say this is not enough and the rate should be ten times the normal rate to ensure all housing stock is used. Our country’s housing stock should not ever be used a kind of “safe haven bank” for foreigners stashing their cash.
It seems this proposal will not include “normal” cases when properties are briefly empty whilst landlords are refurbishing them, including when repairing all the damage that can be done by rogue tenants. It’s worth noting that practice on this varies greatly among the councils we deal with. Some, like Dover, charge full council tax even if the property is empty and unfurnished for just a day. Others, like Southwark, will not charge for short term unoccupancy between tenants or when refurbishment is going on.
Capital Gains Tax
Less reported on from the budget, but very significant, was that indexation relief for capital gains tax has been frozen for landlords in company structures from January 2018.
Didn’t I warn you before to consider carefully what could happen if you moved over to a company structure to escape Section 24!
In the future, you may need to be prepared for the indexation allowance to be removed entirely at some point for landlords who are in company structures. Now that the government has persuaded landlords to move to company structures they may see the opportunity to tax them more here as well!
Universal Credit / Housing Benefit
Hammond provided some good concessions on Universal Credit, shortening the waiting time from six weeks to five, improving emergency payments and saying that when claimants move onto Universal Credit they will be paid a further two weeks housing benefit whilst a new claim is going through.
Whilst that will persuade some landlords to take the risk of huge arrears under the new system, I would still be unmoved, especially for my London properties where the rate of the housing benefit element has long since decoupled from local rent levels.
I’m not alone in this. And anyone thinking about a wider level of rent control should ponder the fact that according to many studies, over 90% of London landlords now refuse to take tenants on housing benefit / Universal Credit. Under a wider rent control, as advocated by the likes of the Corbynistas, expect a bigger mass rush to the exits by landlords and a withering of supply.
There was a further £28 million in the budget to tackle homelessness. It seems ironic when it is government policy which is exacerbating homelessness, through Section 24, Universal Credit and a lack of house building.
Stamp Duty Land Tax
The biggest story of budget day was the abolishing of Stamp Duty Land Tax (SDLT) on the first £300,000 for first time buyers purchasing any property up to the value of £500,000. So a person buying a £300,000 home to live in pays no tax, but a landlord buying three homes each valued at £100,000 each, making a total of £300,000 will pay an additional SDLT rate of 3%, or £9,000 on top of the normal SDLT rate, meaning landlords will be far less likely to purchase these to do up and rent out to families in far greater need than those who can afford to spend £300,000-£500,000 on their first home. So much for the levelling the playing field between landlords and first time buyers!
We have to agree with many experts that the main effect of the SDLT changes will be to give a boost to house prices. Just like all the shots in the arm for first time buyers before, the main effect of “the fix” usually goes straight onto house prices, for just as long as the fix is not withdrawn (when cold turkey will inevitably follow).
A big beneficiary of all this stuff is, as ever, the UK’s big house builders – also major donors to political parties – whose shares will continue to soar. (Rather comically, under Oliver Letwin the government will once more conduct a review to look at why land some land is not built on by their big house building firm pals. Again, no holding of breath or expecting much to come from this!).
Existing property owners will be happy that housing values will be boosted as a result of this measure – so some good news for the 58% of English and Welsh wards where prices are less than they were ten years ago in real terms. See recent blog post: https://www.lettingfocus.com/blogs/2017/10/regional-changes-in-house-prices-and-predicting-the-future-of-house-prices/
Money for New Homes
There is a package of £44bn of money to increase the delivery of new homes, including £30m a year for five years towards infrastructure and affordable housing in Oxfordshire, for the Cambridge-Oxford-Milton Keynes corridor, along the new Varsity Line railway line between Oxford and Cambridge. Some of the cash will be for Didcot and Bicester, where 30,000 more homes are planned.
Oxfordshire has committed to the building of 100,000 new homes in exchange for this money. Deals like this are planned for other places too, so investors should keep an eye out for these and evaluate how such schemes could enhance values in such favoured areas.
The budget also contained some rather limited measures to help smaller and mid sized house building firms, who were more or less wiped out in the last recession, leaving the big players to carve up the market.
The Chancellor also talked about getting tough with councils who fail to produce coherent local housing plans.
Oh, Jeremy Corbyn!
Jeremy Corbyn’s response to all this was as expected – apart from the fact that he now apparently supports landlords being paid Housing Benefit direct – as Labour has finally cottoned on to the fact that giving tenants large sums of money with which they might or might not pay the rent actually leads to evictions and homelessness.
But then, Corbyn also said, “With £10 billion going into the pockets of private landlords every year, housing is a key factor in driving up the welfare bill”
Oh dear, he cannot help repeating the nonsense that Housing Benefit is a kind of gift to landlords.
And the alternative is what? Tell tenants who can’t afford to pay for accommodation that they will get nothing and be on the streets? Or give it to the tenants (but then he just said it should not go into landlords ‘pockets, even though he just also said it should go directly to landlords).
Confused yet? I am!
Perhaps he would make landlords offer accommodation for free (as it is wrong of them to accept housing benefit)? Perhaps, there would be rent caps, which, as we have argued above, would drive thousands of landlords from the market (leaving an even bigger housing benefit bill for social housing providers and big cash or strain for providers of emergency accommodation).
Conclusion
Surely, not a bad budget all in all, but hopefully the government soon realises they have to reverse all the aggressive policies against landlords and understand that we are needed in a modern economy to provide the essential housing for workers, families, migrants, students and those on low incomes and dependent on state benefits.
And maybe we could have some big, grand and sensible polices to really drive up housebuilding in the areas that need to see it. Again, don’t hold your breath.
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