Despite landlords’ best efforts to persuade government otherwise, one of the most punitive tax regimes in Europe will next week descend on them – the start of a four-year phased removal of mortgage interest tax relief, which will hit those erstwhile enthusiastic buy-to-let investors with higher earnings and higher mortgage borrowings hardest.
I can’t help feeling the government is being highly disingenuous when minister after minister repeatedly says how much they value the private rented sector and the small landlord, yet they incessantly introduce disincentives for small-scale landlords, currently making up at least 85% of residential rental supply, while incentivising large-scale institutional investment.
It seems madness to me that when eighty-nine per cent of landlords are private individuals responsible for 71% of all private rented dwellings, with a further 5% of landlords being small company landlords responsible for 15% of dwellings (DCLG Private Landlords Survey 2010), that government appears not to truly value such a resource. Government frequently describes the private rented sector (PRS) as a cottage industry.
Most of the growth in the PRS has been from individual landlords, and a major driver of this has been the availability of buy-to-let mortgages. One study carried by the Intermediary Mortgage Lenders Association (IMLA) found that since the introduction of buy-to-let mortgages in 1996 they have financed 1.4 million homes in the PRS. When these individuals sunk their money into this, they had no idea the government would introduce such a tax.
A tax on total income, as opposed to taxing profit after deducting loan interest, a benefit every other business in the land has always enjoyed, will have the effect of driving some landlords out. In the short-term rents will inevitably rise in a rental market which is already under supplied with accommodation, piling more misery on cash strapped tenants.
Longer term, increasing supply through large-scale new build blocks may alleviate some of the problem, as the government intends, and as it says in a recent report: “Government [has] emphasised the importance of increasing institutional investment into the PRS to fund large-scale, professionally managed developments.”
But government admits that: “Despite the 2010 Government’s focus on institutional investment, the majority of PRS properties in England are currently built, acquired and managed by individual, buy-to-let landlords,” and so far it would seem institutional investment has not has the impact government intended.
So, where are the incentives for the private landlord? Where are the tangible measures to encourage and help the small-scale landlord as opposed to the increasing regulatory burden, the punitive tax regime and the shabby treatment of those individual landlords, both at national and local level, who carry out such a valuable service to the community using their own hard earned cash?
Will the second Rugg Review of the PRS announced this week make any difference, or will that too pile more pressure on the small-scale landlord?
However, the Residential Landlords’ Association (RLA) is welcoming the new review to be funded by the Nationwide Foundation, a charity that says it aims to improve the lives of people in need.
The last Rugg Review was published in 2008 but since then the private rented sector has almost doubled in size, with more and more people living in rented homes. The University of York’s Julie Rugg and David Rhodes, were authors of the original ‘Rugg Review’ entitled “The Private Rented Sector: Its Contribution and Potential”.
Let’s hope that unlike Sajid Javid’s recent white paper (which was again all about institutional investment with little mention of small-scale landlords), this Rugg review and others like it begin to recognise the contribution that the small-scale private landlords can and do make.