Andrew Turner, director of www.commercialtrust.co.uk, asks why the government appears to be making every attempt to demonise private property investors.
A little over two years ago, in a speech to the National Housing Federation, then-housing minister Mark Prisk outlined his grand vision for a “bigger and better private rented sector” wherein homes were provided by institutional investors.
Twenty-two months later, Chancellor George Osborne presented the first all-Conservative Budget in almost two decades – and landlords, a group you might think would be safer under a Tory majority, found themselves in his crosshairs.
Buy to let mortgage interest relief withdrawn for individual investors
The Chancellor announced as part of his July 2015 Budget that full tax relief for buy to let mortgage interest would be withdrawn, and replaced with a 20% reduction.
This was met with a great deal of consternation, particularly when those of an accounting bent began to realise that taxing turnover rather than profits (as would be the case under the new system) would affect more than just landlords on higher- and additional-rate incomes, and could see many landlords taxed on a trading loss.
You could be forgiven for thinking at the time that this was political point-scoring. Thanks to an overemphasis in the media on an exploitative and criminal minority, landlords are rather unpopular, and by targeting someone other than the vulnerable demographics to whom the July Budget dealt the most punishing blow, perhaps the Chancellor could demonstrate that we were, in fact, “all in this together”.
Go big, go corporate, or go home
Another likely interpretation is that, by exempting limited companies from the new tax regime, the government sought to encourage a greater degree of corporate investment in the private rental sector.
Further measures announced in the Autumn Statement on 25 November leave this in little doubt. Whilst stamp duty land tax (SDLT) rates will be increased by 3 percentage points for individual landlords, corporate investors and funds that make “significant investments” in residential property will, again, be exempt.
Subject to public consultation, the definition of “significant investments” is likely to mean owning in excess of 15 properties. This sends a strong message to smaller private landlords: ‘Go big, go corporate, or go home’.
It’s becoming increasingly difficult to be a landlord
It isn’t just fiscal policy that is undermining the ability of smaller landlords to operate in the sector. The government is releasing new legislation at an alarming rate, and even the most attentive of landlords would struggle to keep up with their changing obligations.
The ‘right to rent’ scheme being rolled out across England next year following a six-month pilot in the West Midlands will see landlords forced to act as border police. (Right to rent checks introduced for landlords in England – Gov.UK.) Meanwhile, landlords in Wales must now license their properties and, if they self-manage, undergo compulsory training to ensure that they are ‘fit and proper’ to do so. (Rent Smart Wales – Gov.Wales.)
And then there are the proposals to extend mandatory licensing to smaller houses in multiple occupation (HMOs). The aim, we are told, is to root out those few criminal landlords who let overcrowded and perilous properties, but the likely outcome is that currently compliant landlords will face more costs to bring properties they have already paid to renovate back in line with the new standards. (Extending mandatory licensing of houses in multiple occupation and related reforms – Gov.UK.)
Of perhaps the greatest concern is the clandestine nature in which these consultations are released and these laws are passed. Little to no central effort is made to communicate changes in the law to the people they will affect – which of course is not just landlords, but also the tenants it is becoming increasingly difficult for them to house.
The government’s attitude is hard to explain
What puzzles me most is how counterintuitive to the Conservative ethos this drive to push small, private investors from the sector is.
Margaret Thatcher recognised that individual aspiration and social mobility were positive things. By assisting would-be homeowners, the Conservatives have it half right; but in doing so, they are undermining the efforts of landlords to run their businesses successfully and fulfil their own aspirations.
Many buy to let investors are people with underperforming private pensions who wish to build themselves a secure future. They are people who, at a time when state pensions are the single biggest welfare expenditure (visual.ons.gov.uk/welfare-spending/), wish not to rely on the state in their retirement, and in the process they help to provide homes where developers and local authorities have fallen short.
The contribution private landlords make should not be underestimated
As a director of a commercial mortgage brokerage, I have seen a great deal of clients who are new to the game. They might be archetypal accidental landlords, budding investors with their eye on their very first property, or individuals hoping for a bit more income and security in their retirement.
Many of these clients came back to us for their second purchase. And their third. Some, before too long, were managing large property portfolios and providing homes for dozens of tenants.
Successive governments have failed to address the housing crisis. Between dwindling social housing stock and a stark shortage of new housing starts, it has fallen to private landlords to plug the housing gap and put roofs over the heads of millions. Now, it seems, they are little more than casualties of political convenience.
Written by Andrew Turner, director of Commercial Trust Limited