The Future for Buy to Let Landlords
David Lawrenson of LettingFocus sees some positives from what appears to be a gloomy year for landlords.
The Future for Buy to Let Landlords
It’s been a funny year for so called “buy to let” landlords.
They have been clobbered by George Osborne’s hikes to Stamp Duty Land Tax (SDLT) – a special tax designed just for pesky “Mom and Pop” landlords.
Interestingly, in recent weeks, the Conservatives seem to have now given up trying to counter the claims, made by me and increasingly by others including Richard Dyson in the “Daily Telegraph”, that this is not really about making a more even playing field for first time buyers, it’s more about allowing the Conservatives’ friends in overseas property and pension funds to carve up our market. Indeed, you may have read in the press that the UK’s biggest “buy to let landlords”, Fergus and Judith Wilson, have just sold out to overseas property firms.
A few months before the SDLT brown stuff hit the fan, small landlords were hit hard by the changes to how we can deduct mortgage interest. Many landlords will be pushed into a higher rate tax bracket and many more will have to pay big chunks of tax even though they are making a loss on their property letting business. Again, pretty unique and one might like to compare private landlords to Facebook, which, though it is clearly hugely active in the UK, paid less in tax last year than the Rent a Room Allowance!
Surely, this must prove beyond doubt that the Conservatives remain the party of BIG business rather than ALL businesses.
Institutional Investment in the Private Rented Sector
Of course, in the Conservatives’ rush to attempt to Tesco-ise the private rented sector, (I claim to be the first to use that particular phrase, which has now kind of caught on among the landlord fraternity), they have forgotten that the “big-player” landlords are not actually that much cop at what they do, as the influential, much welcomed and well researched Rugg Review into the private rented sector found back in 2008…
Quote from “Inside Housing” (not the most pro-BTL landlord website):
The call to help hobby landlords turn pro is unlikely to impress lobbyists clamouring for rapid private rented sector growth backed by institutional investment. Here Dr Rugg and Mr Rhodes enter myth-busting mode. ‘There is a lot of talk about more institutional investors,’ Dr Rugg said. ‘But if you have a small number of very big landlords, they tend to operate in a less flexible way than smaller landlords. A big institutional landlord has a rent-setting policy. Smaller landlords are more likely to take people like lone parents or unemployed people.’
So, where do I think the private rented sector will be headed now?
Well, the changes will hurt many people. Tax-wise there is a renewed scramble to find solutions. So, in March, at our next seminar I welcome back Stephen Fay to explain possible work arounds. (See the Events header if you want to book to come).
But even with the Chancellor’s attacks on small scale landlords, I still say that the big pension funds will struggle to compete with smaller landlords because their operating costs are about 35% of turnover, whereas small landlords are 20% at most. And now that foreign investors have to pay capital gains tax too from April 2014 just like us poor Brits (ah, shame!), the returns to them will be too small. (And that is before they start to worry about Corbyn-style rent controls*)
Private Rented Sector to Shrink?
Many potential new “Mom and Pop” type entrants into the world of buy to let will be scared off for good, especially the “accidental” or “reluctant” landlord. The type of person who cannot sell his own home and would otherwise have let it, will now be less likely to do this. This means that there will be less competition from new entrant buy to let landlords for existing players.
So, the net effect of all this is that the private rented sector will shrink.
And with too little supply of rented stock, this will, in time, allow sildenafil those who stay the course, (and who can work their tax arrangements to fit the new regime), to put up their rents well above inflation. Landlords will be OK doing this unless an even more stupid government comes in and applies rent controls, as in parts of Scotland where rent controls* may soon start.
Finally, I can certainly see small scale property developers being hit hard. That run down property blighting the roundabout in the centre of your town, (which previously would have been purchased by a landlord-developer to do up and sell), will now be more likely to sit blotting your high street for many more years. The SDLT is one thing, the need to pay capital gains tax in 30 days after sale, will be just too much for many developers to bear.
*Footnote: Of course we have rent controls already in England – well, we do after a fashion. The caps on the level of housing benefit in the Universal Credit is a form of rent control that ironically hits the poor hardest. It has meant that landlords who would otherwise have let to tenants on benefits in places like Hammersmith and Fulham and yes, in Islington too, Mr. Corbyn, have long since exited the market and refuse to take benefit dependent tenants. And so we see the local authorities in many London boroughs offering cash incentives to landlords across the country to take these sorts of tenants in. The poorer folk of London being offered accommodation in far flung parts of the country where they have no prior connection. Social cleansing on your watch methinks, Boris.
Meanwhile, those families who resolutely refuse an offer of a place in Stoke or Skegness, but who are still in desperate need of housing, are put up by their London councils in hotels and other very expensive and unsuitable B&B accommodation at even greater taxpayer cost. This is the reality of the kind of bad outcomes that happen when a price of a service, in this case, private rents are controlled.
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We advise a range of organisations including banks, building societies, local authorities, social housing providers, institutional investors and insurers. We help them develop and improve their services and products for private landlords. David Lawrenson, founder of LettingFocus, also writes for property portals, speaks at property events and is regularly quoted by the media.
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