Landlords, still reeling from George Osborne’s budget tax shocks, have been told by a Tory Minister that they should be “squealing” under the crackdown. Designed to make landlords’ lives more difficult in a Tory bid to help more people buy their own homes, the changes caught landlords by surprise following the election of what they thought was a business friendly government.
The revelation comes following a meeting held at the Treasury with the Residential Landlords Association (RLA) whose spokesman said it was “shocked” by the response of the minister, recorded during the private meeting earlier this month, as it tried to raise concerns about a crackdown.
Buy-to-let landlords are being hit by a significant crackdown on tax, stiffer mortgage approvals and a host of regulatory reforms, all of which go to make landlords lives more difficult.
Many experts are now arguing the changes will not just affect landlords. With a shortage of rental properties and already high rents, many fear that tenants will be hit by rent increases in the coming months.
A 3 per cent stamp duty surcharge on buy-to-let and second homes, plus a slashing of the amount landlords can claim against mortgage interest payments, will put some landlords, especially those with high interest payments to make, under financial strain.
Alan Ward, chairman of the Residential Landlord’s Association, said in a recent Daily Telegraph article that he did not want to name the minister to spare him “embarrassment”.
Mr Ward said: “We went last week to raise landlord’s concerns with specific reference to the mortgage interest relief and the Government’s taxation policies towards private landlords.
“We wanted to make the case that we have a history of a significant contribution to housing and that this crackdown is unfair and prejudiced.
“The minister’s comment was that if landlords are squealing then the Government will take the view that the medicine is working.
“The minister made the point that the Government is determined to increase the number of homeowners, and then re-iterated the issue about first time buyers.
“We were all a bit taken aback by the comment, we could hardly believe our ears. The government’s idea of medicine is potentially lethal for landlords and tenants.
“Why would the Chancellor want to dish out a deadly dose to swathes of landlords who contribute a vital part of the nation’s housing?”
The Telegraph article reported that the Government is facing a growing backlash from senior Conservative MPs who are concerned about the impact of the crackdown and that six Tory MPs are prepared to champion the landlords’ cause, amid growing concerns that they are being unfairly treated.
Graham Brady, the chairman of the 1922 committee of Conservative MPs, told the Daily Telegraph:
“There are some legitimate policy objectives in terms of trying to ensure supply for people buying. It isn’t a completely one way issue.
“But on the other hand a lot of people are involved in residential letting. It is a perfectly proper and legitimate business and makes a very important contribution to labour market flexibility and mobility.
“I think there are some quite serious concerns about elements of it [the crackdown]. There are questions about the different treatment of some businesses from others. There are some quite legitimate concerns.”
The Chancellor has said he wants a “level playing-field” between those who are buying a home to let, and those who are buying a home to live in.
A Treasury spokeswoman said:
“It is right that people should be free to purchase additional properties such as buy-to-lets or a second homes, however this can impact other people’s ability to get on to the property ladder.
“Higher rates of stamp duty on additional properties will help double the affordable housing budget and support even more first time buyers fulfil their ambition of owning their own home.”
The Changes in a nutshell:
- Second homes and buy-to-let purchases will have an extra 3% in stamp duty to pay from April 1, 2016.
- This means that anyone buying a second home or a buy-to-let will be paying several thousands of pound in extra tax – a £450,000 house will incur an extra £13,500 in Stamp Duty Land Tax.
- For those buying before they sell their main home will have 36 months to sell their original property to reclaim the extra tax.
- In addition, anyone owning two or more properties, who sold their home before November 2015, but does not currently own their own home, has until November 2018 to buy a new one without paying the extra tax.
- The amount that can be claimed against mortgage interest will be tapered off to a 20 tax credit against income by 2020.
- Mortgage fees and set-up costs can no longer be claimed.
- Landlords are to be excluded from the 10% reduction in Capital Gains Tax (CGT) announced in the March 2016 budget.
- The long standing 10% annual wear and tear allowance given to landlords of furnished buy-to-lets is to be removed and replaced by a like for like replacement cost allowance.
- The Prudential Regulation Authority – which is the Bank of England’s arm that regulates the financial sector – wants lenders to make more stringent income checks on landlords to ensure they can afford the mortgages on their rental properties. It also wants banks to test whether landlords can still afford the monthly payments on these loans if interest rates rise, which are now being stress tested at around 5.5% above base rates instead of 5%. Until now, landlords have typically required a 25 per cent deposit to get a buy-to-let mortgage but this could rise to 35% for some lenders, plus they have also needed the rent to cover monthly mortgage payments by 125%. This could rise as high as 145% for some lenders.
- Regulatory changes affecting the way landlords manage their properties and deal with bad tenants will mean that landlords will need to be more vigilant in the way they manage their tenancies if they are to avoid trouble and still make a profit.
A spokesman for Property investment firm Armistead Property, Peter Armisted, thinks that the tougher lending criteria and recent tax changes will not have a major impact on the housing market as a whole:
“…Though the new tax rules are challenging for most landlords, rising asset values and rental income will go a long way to protect profits
“Landlords have plenty of options available that will help offset the increased taxation. The first thing landlords should do is carry out a serious portfolio review and work out how the tax changes and tougher mortgage lending will affect them and what options there are to save, or make, more money. For example, mortgaging to get a better deal, renovating some old stock – these costs will be tax deductible, selling some properties, or increasing the rent.”
Mr Armistead said: “Landlords need to think outside the box and ask themselves questions like, ‘Can I buy with cash or with far less leverage?’, ‘Should I incorporate?’, ‘Can I change a house into an HMO [House in Multiple Occupation] and increase the rental income?’, ‘Can I get planning on an existing property to increase its value?’, or ‘Can I add an extension or convert the cellar?’
“Although the Government is trying to curb the buy-to-let market, property investment is robust in the long-term. It is estimated that two million Britons are now private landlords, collectively renting out five million properties. With rising demand for rental property and a growing shortage of accommodation, the buy-to-let market will continue to give a good return on investment.”
The Residential Landlords Association has reported that the majority of landlords are thinking of increasing their rents.
Tax changes should make landlord “squeal” https://t.co/E2H6hTMUrr
— LandlordZONE (@LandlordZONE) May 17, 2016