In the Autumn Statement George Osborne has made it clear that small-scale private landlords have been on to a good thing and will not have it so good in the future.
It’s also a good opportunity, as the Chancellor sees it, to placate “generation rent” giving them a leg-up onto the housing ladder, by creaming off the top some of the buy-to-let investors’ profits.
A 3% Stamp Duty (SDLP) levy is to be applied, on top of the exiting SDLP rates, to every buy-to-let and second home purchase.
Britain’s small army of private landlords, the vast majority owning just one or two private lets, came in for a barrage of negative media hype and anti-landlord campaigning coming up to the May election. Some of this sentiment seems to have rubbed off on George Osborne and incorporated in his political manoeuvrings behind these tax changes.
Mr Osborne knows that a large swathe of the electorate, generation rent and their parents, are extremely concerned about the price of houses, and the difficulty for young people to get onto the property ladder. This problem is not confined to Britain: affordability is a world-wide issue.
Rebalancing the housing market, by taking money off successful buy-to-let, and channelling it into house building for young home buyers, looks like a clever political ruse.
Favouring large-scale corporate landlord investors over the “cottage industry” small-scale landlord, with large tax incentives, looks like it’s the way things are going under George Osborne.
So, with a raft of new letting regulations introduced earlier this year, the upcoming Right-to-Rent checks due next February, the removal of mortgage interest relief along with an annual expenses charge, new mortgage restrictions for buy-to-let loans coming soon, and now this SDLT levy – you have a cocktail of measures enough to dampen the enthusiasm of the most optimistic landlord.
There are estimated to be around 1.5m people in the Britain who are small-scale landlords of one stripe or another, and the private rented sector has doubled in 15 years, now housing nearly 20% of all households.
The industry, and that’s what it is, matching the asset value of the motor industry, has gradually gathered momentum since the Conservatives under Margaret Thatcher deregulated the tenancy laws in 1988. They removed rent control and eviction restrictions by introducing the shorthold tenancy.
Then came the inability of the older “baby boom generation” to find decent returns and security in other forms of investment, pensions and annuities. This brought rental property to centre stage as the ideal safe form of investment. It fuelled a boom in asset prices which kept on increasing; more and more people saw the benefits of becoming a landlord.
The ultra-low interest rates that following the 2008 recession, and the demand for renting from a generation of young people who could not afford to buy, created a perfect storm. It was a rush for those buy-to-let mortgages which became ever easier to obtain, and a rush for those same properties that first time buyers were after.
It’s perhaps understandable then that government is getting concerned about the risk to financial stability from booming demand and rising house prices. It duly prompted these measures to cool the enthusiasm of would-be landlords. George Osborn must also be concerned about the political risks of excluding more and more young people from home ownership.
The Association of Residential Letting Agents (ARLA) has called the measures “catastrophic” for buy-to-let landlords. Whether that’s the case long-term remains to be seen. But the additional 3% stamp duty, payable within a month of a property purchase, rather than by the end of the tax year, is a real blow, on top of everything else.
According to Jennet Siebrits, head of residential research at CBRE, the global estate agency, quoted in the Financial Times (FT), this new surcharge could add between £3,500 and £7,500 to the cost of a £250,000 property, and it is expected to raise £625m in 2016-17, rising to £880m in 2020-21.
Mortgage brokers are now expecting an unprecedented rush to buy and secure low interest buy-to-let mortgages before April 2016. Once the measures are fully implemented there is an expectation by the Treasury they will have a “material effect on house prices”.
Richard Lambert, chief executive at the National Landlords Association, told the FT the chancellor wants to “choke off future investment” in buy-to-let, private properties to rent, in what he described as “an attack on small private landlords”.
However, the Treasury have acknowledged there will be uncertainty over the amount of revenue the SDLT levy will raise, given that it is basically dependent on purchaser’s honesty: that the dwelling they are buying will not be their primary residence. Enforcement could have its problems.
The stamp duty surcharge will not apply to companies or property investment funds making “significant” investments in residential property, more than 15 properties is the figure that’s been suggested.
Some lenders think that landlords will consider switching to owning through a limited company or companies in future. These may not be liable for SDLT but would attract corporation tax, plus taxes on dividends when the directors withdraw money from the company.
The usual refrain after a budget is about winners and losers; this time there’s absolutely no doubt at all: buy-to-let landlords are the losers, and perhaps the house building companies will be the winners?