Generation Rent, the Nation of Renters and Landlords Taxes
A recent survey and press release from the Halifax (the ones with those annoying but oddly impactful adverts of the two girls making a jingle and spilling their coffee) got a lot of column inches. “Suddenly we are becoming nation of private renters” says the Halifax.
Those of you who have followed my work for a while will know that 5 years ago, I made a prediction that half of all residential properties could be let by the year 2026.
Back then, journalists’ favourite Ray Boulger thought it was crazy to make predictions like this, pointing out that government policy could change and easily make the prediction invalid.
Mr. Boulger had a point. We really don’t know what will happen in the future and government policy changes could radically effect what will happen to the private rented sector – its size, scope and ownership profile. Changes to tax policies on housing in particular can also make huge changes to the attractiveness of different parts of the housing sector.
One big potential change, which I have written about here before, will be if big city investors get into the lettings market and start financing the building of large blocks exclusively for the private rented sector (PRS). This looked suddenly more attractive following the last budget’s changes to stamp duty on multiple property units purchased as a block. (Look at the category, “Private Rented Sector Initiative” and “Build to Let” over to the right in our Categories section for more on this.)
The Private Rented Sector Initiative (or PSRI) – which is all about institutional investment in the PRS – is an area of the business that I am watching and already advising on.
Underwriters Staying Underwriters
Speaking of government policy and tax changes and their impact, last week I did a talk to a group of underwriters from a major lender involved in buy to let mortgage lending. This lender is one of an increasing number who have sufficient initiative to see that it might help their staff to find out what landlords do from an actual expert and practioner in the field.
The talk was part of my consultancy for this lender and one bit of the talk covered what successful landlords do (and don’t do.)
Interestingly, only one member of the audience was actually a landlord, (and that was by default, as she had relocated for work.)
At the end of the session, I asked them all, if, as a result of my talk, they any more inclined to become landlords, and was a tad disappointed to find that they were still unprepared to make the leap.
Usually, when I speak, people get a bit inspired to look into landlordism more, though their reticence could be due to them being based in a part of the UK where house prices have been decimated in the past year due to problems in the local economy.
Landlords and Tax
A key thing I highlighted in my speech to them was how I thought the tax system was relatively kind to private landlords. (Yes, I know the landlords reading this won’t all agree.)
In particular, the fact you can offset interest on loans against rent before declaring profits is very attractive (and contentious for some).
Of course, all businesses can do this, but some pressure groups think landlords should not be able to. “It’s not a proper business and it sets landlords at an unfair advantage over first time buyers when it comes to buying property” they say.
I won’t go into that debate, here, except to note that a few years ago on Radio 4’s MoneyBox programme, where I was on with someone from Pricedout.org.uk, an organisation which has this view; I suggested that the lack of social housing was a far more significant factor in the growth of the PRS than landlords’ tax breaks.
Of course, there are other tax breaks too – especially the little understood, “Private Letting Relief” which, whenever I explain it, always has landlords saying, “Are you sure HMRC really gives us all that!”
Yes it does, and it is just one of the things that explain why buy to let remains attractive.
But the tax system could all change and the changes may not all be to landlords liking. It’s a risk to our business but it’s just a risk of doing our business.
And those who don’t like risk are condemned to not become wealthy and to moan about those who have.
Link to the article from 2006:
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