Cover Story: Buy-to-let blues

Landlords under siege?

Private landlords and buy-to-let investors are feeling rather aggrieved by recent Government policies their representatives have called an attack on the sector, but however hard-pressed they may be it’s not like they’re social landlords

By Mark Cantrell

First published in the April/May 2016 edition of Housing magazine 

BY now, it ought to be fairly obvious that the current Government just doesn’t like social landlords, but in the drive to push home ownership at all costs it seems ministers have gone off private landlords too. 
Lately, the private rental sector has found itself the brunt of policy initiatives some regard as likely to be detrimental to its business – landlord bodies have been quick to invoke the poor benighted tenants, who it is said will ultimately lose out as a result of Government interference.

The Government has indeed been busy and it hasn’t yet quite marked the first anniversary of last year’s surprise Conservative majority win: first, the Chancellor of the Exchequer curtailed mortgage interest relief for the buy-to-let sector in his 2015 Summer Budget. Later, he followed through with a 3% increase in Stamp Duty Land Tax (SDLT) for the purchase of additional homes in his Autumn Statement.

Frankly, people buying a home to let should not be squeezing out families who can’t afford a home to buy,” said George Osborne in his speech, oiling the wheels of populism with a little of the moral opprobrium normally reserved for social housing.

Suffice to say, this hasn’t exactly gone down well among private landlords. The Residential Landlords Association (RLA) was quick to leap to the defence of tenants, whom it said would be the “biggest losers” because they will consequently “find it even harder to get accommodation at a price they can afford”.

The extra stamp duty on buy to lets will exacerbate an already serious shortage of properties in many areas reducing choice and driving up rents. The Government should be encouraging landlords to invest, not doing everything they can to discourage them,” said the organisation’s chairman, Alan Ward.

As far as the chief executive of the National Landlords Association (NLA) was concerned, the motives are political and geared towards creating opportunities for large-scale investors operating higher up the economic food chain.

The Chancellor’s political intention is crystal clear: he wants to choke off future investment in private properties to rent,” said the NLA’s chief, Richard Lambert. “The exemption for corporate investment makes this effectively an attack on the small private landlords, who responded to the housing crisis by putting their own money into providing homes, by the party that they put their faith in at the election.

If it’s the Chancellor’s intention to completely eradicate buy-to-let in the UK then it’s a mystery to us why he just doesn’t come out and say so.”

As it turns out, the ‘bigger fish’ are getting fried too. Fast-forward to Osborne’s Budget in March 2016: the British Property Federation (BPF) was not best pleased to discover that larger investors in the private rental sector won’t be exempted from the Stamp Duty hike after all.

The Government’s decision to not include an exemption for investors who are purchasing large portfolios of properties for rent is extremely disappointing – and deals a huge blow to the Build-to-Rent sector,” said the BPF’s chief executive, Melanie Leech. “This is going to be a significant deterrent to the institutional investment currently poised to settle in the purpose-built rented sector, which has the opportunity to deliver a significant number of new, quality affordable homes.”

There was no time for the buy-to-let brigade to enjoy a little schadenfreude, however; they took another poke in the eye when the Chancellor declined to invite the sector to his tax-giveaway jamboree. When he announced he was cutting capital gains tax (CGT) from 28% to 20% he also made it clear that landlords are not included. “The old rates will be kept in place for gains on residential property and carried interest,” he said.

Grumbles from the sector were quick off the mark.

This is now the third Budget which directly attacks landlords,” said David Cox, managing director of the Association of Residential Letting Agents (ARLA). “The sector has been punitively taxed, with stamp duty on buy-to-let properties, mortgage interest relief and now capital gains tax changes. It’s an outright assault on the sector.

Every other sector has been offered a tax break. Yet there’s nothing here to help the private rented sector, including landlords – and most importantly tenants, who will see rents rise to subsidise the taxes that landlords pay on property. The Government talks about wanting to help the younger generation get onto the property ladder, but with the changes announced the supply of available property is bound to decrease and as a result rents will rise.”

The NLA’s Lambert said: “The Chancellor said that this Government would tax things it wants to reduce not the things it wants to encourage. On that basis, it’s clear he does not regard ordinary people putting their own money into providing homes as worthwhile.

The steady upward ratchet of taxation on landlords over the past year shows that George Osborne is determined to bear down on the private rented sector, but he still depends on the tax revenues he expects to pull from them. The NLA called for a short-term easing of CGT to allow landlords to restructure their portfolios or to exit the market altogether, but it appears that however much he wants us out, he can’t afford to allow us to leave.”

Mixed signals were already emerging out of the buy-to-let sector in the wake of the Chancellor’s Summer Budget and the Autumn Statement. On the one hand, there’s been a surge in mortgage lending for buy-to-let purchases, as investors look to get in ahead of the Stamp Duty increase in April. On the other, there have been reports that growing numbers of landlords are considering selling off properties and walking away from the business.

The latest Budget will surely do little for the sector’s sense of self-esteem and faith in the future. Earlier this year, for example, the NLA’s Lambert delivered a speech at the annual gathering of the Building Societies Association, where he told delegates that landlords’ confidence in the buy-to-let sector was at an all time low – lower, even, than at the time of the 2008 financial crash.

The NLA’s quarterly landlord panel forecast a sharp drop in the supply of private rented properties – 500,000 homes sold off in the next 12 months alone, followed by a further 100,000 each year to 2021. The net result would be to leave the private rented sector shrunken by up to 136,000 properties, it suggested.

[T]here is no guarantee that these will be one- or two-bedroom flats or small houses that will appeal to first-time buyers, especially as landlords are more likely to offload less desirable stock in less desirable areas,” Lambert said.

We have always said that Mr Osborne is blinded to the impact of his decisions by his commitment to homeownership. He may have intended to focus on the small-scale, part-time investor, but it’s the larger and more professional landlords who will be hit worst by cuts to mortgage tax relief and an increase to stamp duty, and who appear most likely to leave the sector.

What happens to the people these landlords house if they still can’t buy and there are fewer and fewer properties available to rent?”

Pertinent questions perhaps, but the private rented sector’s exercise in ‘woe is us’ isn’t likely to garner much sympathy further afield. After all, landlords and buy-to-let investors aren’t alone in facing the Government’s cold shoulder, or the hardships invoked by an unsympathetic policy environment.

Indeed, compared to some you might say they’ve had it easy. The private rented sector may well feel hard done by, but it’s hardly a tenure under siege – that would be social housing. 

This article first appeared as the cover story in the April/May 2016 print edition of Housing magazine. It was subsequently republished on the Housing Excellence website, 11 May 2016

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