Landlords, will Cherie Blair be their Guardian Angel?
7th October 2017
We certainly live in interesting times. Private Landlords, originally encouraged by successive Labour Governments to pick up the rental property slack left by the decreasing availability of social housing on offer from the State, are now under fire from a Conservative Government.
Way back in the later 90’s, Banks and Building Societies were ‘leaned on’ by the Government of the day, to make lending more easily available to private landlords, for the sole purpose of increasing supply into the rental sector. This was to help stem the increase in rental costs across the UK, by increasing supply to the market. The success of this initiative is hard to gauge, as there are so many variables at play, particularly the constant increase of demand over supply. caused by an escalating population and three decades of under supply to housing stock in general in the UK. In short - a perfect storm.
It has suited the current Government to encourage a hungry media to change its narrative and blame landlords for the plight of First Time Buyers. The logic is simple, if it is less attractive for landlords to not just buy more properties (by adding a further 3% Stamp Duty) but even retain existing properties (by removing full tax relief on mortgage interest), then more properties will be made available to would be First Time Buyers. The question is, will this actually solve the underlying problem that is causing a housing crisis in Britain? Or is it is simply moving the same pieces around the same board?
Should we really be blaming Landlords for the housing crisis? It does feel like a long and desperate stretch to do so and a perhaps a misdirection of negative sentiment that would otherwise be directed at successive Government’s lack of serious and sensible housing policy. Yes, surely the real elephant in the room here is that no government for the past 30 years has actively built enough property. Just the term ‘Social Housing’ appears to be an anathema to all Governments since Margaret Thatcher introduced the Housing Act in 1980. But the simple fact is, not enough homes are being built. Everyone agrees on this, but no one is sure how this challenge should be met. For decades now we have been relying on, incentivising, and even cajoling the private sector to pick up the slack. That slack according to the CBI in a recent report entitled “Housing Britain - Building new homes for growth” (See the CBI Report Link below), is about 120,000 additional new homes per year, which is roughly twice as many as the private sector are happy to build. Why will they not build more? Well, increased supply will mean (for them) proportionately reduced demand. Reduced demand means lower sale prices, therefore lower margins and so on. Yes, they might be your friends Mr Osborne, but they are not stupid!
Within the CBI Report they calculated that 337,500 new households are looking to put a roof over their heads - each year. Only 4 times in the last 14 years have we exceeded just half of this amount. And this is not just a London problem – it is UK wide:
Before the UK stopped directly building social housing, the housing supply stock has more or less halved year on year. The idea that this is somehow saving the UK money is a false one, for as the CBI report makes clear:
“New research commissioned by the CBI from the Centre for Economic and Business Research (CEBR) has quantified that if housing and commuting costs had risen at the same rate as the Consumer Price Index (CPI) rate of inflation, households across the country would have an extra £4 billion a year additional spending and saving power. Of this £4bn, £3.2bn is from higher housing costs and £770m from higher transport costs.”
Landlords are not the problem here and to suggest they are, is nothing more than some political sleight of hand to direct attention away from the real problem, whilst simultaneously helping Mr Osborne balance the books to meet his austerity driven goals. He knows full well how unlikely it is for this to backfire on him politically, in the knowledge that the wider public will have little sympathy for the predicament private landlords will find themselves in, should these plans be implemented.
There have been a number of challenges against the Government over these new changes, but none more high profile than Cherie Blair, as she takes on the cause of private landlords, claiming they will be victims of human rights abuse under these intended tax changes. She argues that the difference in the way corporate landlords and individual landlords are treated is in direct contravention of article 1 of the European Convention of Human Rights. In addition, she argues that it is distorting competition by favouring corporate landlords. (Please see the link to her letter in full below)
This legal challenge has been funded by Crowd Justice who had originally intended to raise £15,000 to finance the action. Yet such is the strength of feeling over this issue, they have (at the time of writing) raised £50,091 which is 333% of their original target. Read here for full details of their campaign: https://www.crowdjustice.co.uk/case/clause24/
Another unintended consequence of these changes will undoubtedly be rents increasing as supply reduces within this sector. The hope that this will be compensated for by more First Time Buyers entering the market is somewhat scuppered by the difficulties they have in obtaining mortgage funding. Whilst the mortgage market needed to be better regulated, it has unfortunately meant that for many, the dream of home ownership will remain just that - a dream!
The graph below clearly shows that since the banking crisis mortgage lending has not really recovered:
So for private landlords the battle is not yet over and whilst some are selling up and/or deleveraging their portfolios to minimise the impact changes to loan interest tax relief will have; up to a third of new Buy to Let purchases are now via Limited Companies. This is something we are recommending to all our clients going forward, as detailed below this article (See Buy-to-Let Changes Document below). For as the old maxim goes “Hope for the best, but plan for the worst”!
Your home may be repossessed should you not keep up with the mortgage repayments.
The Financial Conduct Authority do not regulate some buy to let mortgages.
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