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Why does the government have it in for buy-to-landlords?

In the UK, we have a chronic shortage of housing. Apparently we need 200,000 new houses a year but last year we built 189,650 new homes. Bear in mind though that 2015/16 was a good year – and 11% up on the previous year in terms of houses built.

The government can’t afford to provide them and nor can local authorities so over the past 15 years or so, the private sector has stepped up to the plate to an extent whilst at the same time enabling Mr and Mrs Smith to take care of their long term future as the government can’t afford that either and pension funds have performed abysmally. Indeed there are now 1.9 million private landlords in this country.

It sounds a match made in heaven or so you would think; the private sector helps solve the housing crisis and take care of its old age!

Perfect. Or so you would think but no, the government seems to think all these ‘money grabbing private investors’ are getting rich quick, and are pushing up house prices. So they are trying to tax them in to submission by applying a 3% stamp duty surcharge on all purchasers - on average £5,000 in the East Midlands - and preventing landlords offsetting interest charges against income for tax purposes. And it’s working.

Our local authorities have decided to jump on the bandwagon by first of all introducing the need to obtain an HMO licence if your property has three bedrooms or more - costing a mere £910 for five years and now they are proposing that every let property should pay them £610.

And now the government has announced letting agents won’t be able to charge admin fees or referencing fees. The result will be that these costs will be passed on to the landlord through higher lettings and management fees. Letting and managing agents are not making big money and with more and more red tape, these admin fees and referencing fees will have to be replaced somehow.

So Mr Private Landlord, who was previously earning a net yield after all costs of circa 3.5% - 4.0% will now as a result of increased acquisition costs, increased tax, increased letting and management fees and now licensing fees will be lucky to earn 2% to 3% for a significant amount of risk and hassle. 

So where will they put their money? Certainly not the bank at 0.1% interest (if they are lucky). They will probably move into commercial investments where they get longer leases - five years as opposed to six months, stronger covenants, a rent cheque every quarter and net yields of 6-8% rather than 2-3%.

So keep going central government, keep going local authorities. All you are doing is pushing out the private residential landlord which will reduce the number of homes to rent at the time of an acute shortage. This will then lead to lower housebuilding. As one of the key markets for developers shrinks, there will be a lower stamp duty take-up for the government and, due to an even more restricted supply, we will see rents rise.

For those investors who remain, their increased costs will also be passed on to tenants in the form of increased rents as well - a double whammy!

None of this is rocket science. It is simple economics; restrict supply and the price goes up. Unfortunately for a few popular headlines, the government and local authority are going to make that basic right of somewhere to live more difficult for those that they really should be helping.

For what it’s worth, here is my suggestion: Scrap stamp duty on buy-to-lets all together, allow interest to be offset as a cost, remove local authority licensing and the ‘rip off fees’ but maintain the right to carry out ‘spot inspections‘ and introduce a cap on admin fees and referencing fees – the result?: More money in to the sector, more housebuilding, more people taking care of their own pension, more supply of homes to rent, more choice and stabilised rents. 

Oh, and maybe the government should sort out the planning system as well rather than laying the blame at the feet of housebuilders for ‘land hoarding’ as the cause of the housing crisis.

Local authorities should make sure there are enough planning officers in a planning departments to deal with applications (they certainly take enough in fees) and re-programme their planning officers to be helpful and catalysts for development. Their current mind set is at worst to stop development and at best to stall it - by dragging out the process so it takes at least 12 months to get a decision and then perhaps another six months while the councils’ lawyers draft the Section 106 agreement and seek to take ‘legally’ as much money off the developer as they can get. Is it unreasonable to be guaranteed a decision three months after an application is submitted? 

If you speed up planning, more houses will be built more jobs will be created, housing supply will improve, more people will have somewhere to live and rents and prices will stabilise.

David Hargreaves is the co-founder of property agent FHP.

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    It may appear that this will hurt landlords like myself, but not one single penny that I will have to pay extra will come from my pocket. Every penny I earn comes from tenants and they will be paying for every increase that the chancellor imposes. I really do not think that they have thought this through.

  • Brit Sixteen Sixty Four

    The government are simply worried about the huge growth in buy to let and large levels of debt pushing out residential buyers. Residential buyers are more likely to vote Tory and whole generations of voters are being forced to rent so a big voter lose. Something had to be done.

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    There is no difficulty in buying a house my daughter did it on minimum wage with left over savings from uni. The south may have issues but these changes are going to cripple the north. As an agency we charge £99 for everything nothing hidden. Other agents charge more, tenants are free to shop around. Whats the issue there ?

    As a small 12 property Landlord built over 25 years from nothing sacrificing holidays etc. Margins are being cut so far i make less than min wage at that.

    Universal credit - what muppet came up with that one

     
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    You clearly dont have a clue 1664. 'Large levels of debt pushing out residential buyers'?
    Hmmmm, let me see. Number of FTBs in 2010: 168,000. Number of FTBs in 2015: 257,000 - a nigh-on 60% increase. Also, perhaps you could explain how BTL lending in 14/15 was £15.6bn (60% of which was remortgages, so paying off previous debt!), yet the poor beleagured FTBs carried out over 3x the transaction numbers and borrowed £47.7bn?! (Source: CML, BOE). Yes, definitely being pushed out by landlords... obviously...

    Cuckoo!

     
  • Brit Sixteen Sixty Four

    I notice how you don't use 2000 figures and instead 2010. Would that wreck your argument?

    So are you denying home ownership figures have fallen drastically over the last 15 years and % of landlord properties grown massively?

    I think you are simply in denial, I actually understand housing and economics very well. You may not like the governments approach but they are actually very needed. Landlords buying properties with interest only mortgages taking out available equity for more interest only mortgages is a clear risk especially with the lack of repayment vehicles.

  • Peter Plucker

    The UK Government peddles the lie that if Landlords are forced to sell up then the housing will be taken over by families and first-time buyers. However, lending restrictions, low salaries and the "gig economy" of minimum wages and zero hours contracts mean that property prices would have to drop a huge amount for them to afford to save deposits and buy properties. So it is more likely that property companies will scoop them up. You know - the ones who have more than 12 properties so are exempt from the new taxes and restrictions that George Osborne introduced (his mates?).

  • Peter Plucker

    How do the costs and risks compare….?
    Tenant: – a fixed fee for an agreed period with no charges other than for utilities, contents insurance, council tax and agency fees.
    Landlord/property owner: – variable costs that can increase without warning due to: interest rate increases and repair costs, changes in taxation, ongoing costs including mortgage payments, building insurance, letting costs, refurbishment, inventory and utility checking costs; "void" periods with no income and increased costs (e.g. council taxes).
    Doesn’t look like a level playing field to me.
    Reading this list it is easy to see why many people prefer to be tenants, not property owners.
    So why does the Government believe everyone wants to be a property owner if they had the chance?

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