Forget tax, it is big scale Build to Rent that will have biggest impact on landlords
Tax, it is that horrible three letter word that we all hate and right now if you are a buy to let landlord in the UK you have even more reason to do so with changes to mortgage tax relief looming in April.
But before that we do have the Budget on 08 March and many landlords are hoping
that Chancellor Philip Hammond will do a U-turn and change the policy put in
place by his predecessor George Osborne which many believe could lead to rent
rises as landlords try to recoup their tax ‘losses’.
They are also facing higher costs due to a forthcoming ban on letting fees in
England and those looking to increase their portfolios now face an extra 3%
stamp duty charge. Much analysis has been written about how this will translate
into higher rents. Indeed, tenants in the private rented sector face potential
rent increases of up to 30% as a result of tax changes according to a report
from David Miles, professor of financial economics at Imperial College London.
His analysis was written before the recent publication of the Government’s
Housing White Paper which put a new emphasis on providing more homes to let as
part of an overall plan to provide the much needed million new homes by 2020.
Miles argues that tax changes, including the 3% extra stamp duty on additional
properties, that have affected landlords are having a negative effect on the
supply of rental properties and are not the neutral, non-discriminatory system
that had been suggested and he calls for the April tax change to be abandoned.
He finds it hard to understand why the Government would want to deter provision
of private rented accommodation from smaller landlords and says that generally
rents would need to rise between 20% and 30% to offset the impact of the
Government’s tax rises. He does point out, of course, that not all rents would
go up this much.
But you have to wonder why rents would need to go up this much. His argument is
backed by calculations which show that to maintain current yields rents would
need to go up by a certain percentage. But that argument is flawed because
yields are not a concrete entity, landlords know that they can go up and down
and don’t expect them to remain the same.
It is very easy to think that there is a lot of landlord bashing going on but
there are also a lot of positives for landlords and tenants. Letting agent fees
are already banned in Scotland but there was no sudden rise in rents.
Also, research from the Council of Mortgage Lenders has found that the majority
of landlords do not intend to buy or sell more properties to let in the next
five years. The survey, one of the biggest of it kind, set out to gain an
insight into how landlords are coping with changes in the lettings sector and
how tax is affecting buy to let property owners.
It found that landlords tend to make different decisions about financing,
managing and expanding their properties depending on where their properties are
located. For example, yields are strong in Manchester and less so in London and
that can influence decisions on portfolio size. Scotland also has some of the
strongest yields, suggesting that the fees ban has not had much impact on the
market.
The latest index from Countrywide shows that rents have increased by 2.6% as a
whole in the UK, but have fallen in London. Interestingly, the index report
also shows that a record number of landlords are paying cash rather than going
for a mortgage despite low interest rates. In 2016 some 61% paid cash compared
with 41% in 2007 and it suggests that more are doing so because of stamp duty
and tax change.
I don’t think landlords are badly off, they know that property investment is a
long term one and it has its ups and its downs. I think the push for large
Build to Rent development in cities, as outlined in the Housing White Paper, is
a far bigger deal for landlords as it represents a shift away from the
traditional flats and homes let by portfolio landlords to a big scale release
of apartments aimed at young people who cannot afford to buy or don’t want to
buy. That is what I would be paying attention to if I was a landlord.
Source @Property Wire
23 February 2017