The chairman of Berkeley Homes, Tony Pidgley, has issued a warning to government about the dangers of George Osborne’s buy-to-let tax changes and the unintended effect it may have on the housing market.
The Chancellor George Osborne’s plans to restrict tax relief for buy-to-let landlords from April 2017 in what he said is designed to try to “rebalance the housing market and create a fairer environment for resident home owners” is, according to his statement, likely to affect one in five private landlords. This looks like being wildly optimistic.
A number of changes to the taxation of landlords were announced by the Chancellor in the Summer Budget and again in November with stamp duty changes . Many landlords are seriously concerned about the capping of tax relief on mortgage interest payments to the basic rate of tax, to be phased in from 2017 to 2020 as evidenced by an online petition with over 41,600 signatures at the time of writing.
Relief on interest payments has been an integral part of the growth in the buy-to-let market. These new restrictions will have pronounced implications – and an additional £665m in taxes is expected to be levied on landlords in 2020 alone.
Along with other major housebuilders, shares in Berkeley Group PLC jumped following the chancellor’s announcement that home building would be supported by a 3% Stamp Duty (SDLT) surcharge on buy-to-let and second home purchases.
Source: Hargeaves Lansdown
However, Tony Pidgley, who has a reputation as one of the shrewdest operators in the property markets, running his London focussed building company, Berkeley Group, is cautious.
His warning came as shares in the London builder surged 7% to an all-time high, showing a steady and sustained recovery since the 2008 “credit crunch” and more recently marking its eight consecutive day of gains.
The encouraging outlook for housebuilders following the chancellor’s mini-budget in November, a recent period of strong trading, plus surplus of cash on the balance sheet, have helped Berkeley boost shareholder payouts.
But despite the good news for builders and the initial stock market reaction to the Chancellor’s announcements, Mr Pidgley thinks the buy-to-let tax changes, which penalise small-scale landlords, will not be the answer to promoting the level of housebuilding required to meet the increasing demand, particularly in London, and may result in “unintended consequences” for the industry.
“We welcome the political support for the housebuilding sector in the Chancellor’s Autumn Statement but are concerned that the continued changes to property taxation may well result in unintended consequences on the market and not lead to the level of housebuilding required to meet the underlying demand,” Mr Pidgley told the Daily telegraph.
“Delivering more homes of all tenures requires bold action with up to date Local Plans in place in every borough and a mechanism to bring large scale, complex sites into production more quickly.
“While the will is there, the process is slow and expensive and in this period of cuts, the role of the public sector needs to evolve so that it can become less risk averse and actively enable development.”
Adding that part of the problem is down public sector bureaucracy, Rob Perrins, managing director at Berkeley, told the Daily Telegraph:
“The issue we face is once we get a planning consent it takes us a very long time to be able to start on site.
“We need to speed this process up. It takes us two to three years sometimes before we even start. The bureaucracy has to change.”
Berkeley has raised its dividend target from £13 per share to £16.34 per share over the next six years, with the annual dividend pay-out set to increase to £2 a share from £1.44. In addition the board has delighted shareholders by declaring a further interim dividend of £1 per share (£136.5 million), payable on January 22, 2016.
London Housebuilder Warns of Dangers of Buy-to-Let Tax – https://t.co/CiWRsTWlva
— LandlordZONE (@LandlordZONE) December 9, 2015