Should you stay or should you go?

Should you stay or should you go?

This is the question many landlords have on their mind at the moment, and this is a direct result of the Government’s attack on landlords and the buy to let market.

Last year heralded a triple whammy of news that will affect the BTL market and 2 of those seem likely to make it to law very soon.

The first of these was the reduction of mortgage tax relief (aka Clause 24) that I’ve covered in another post here. The brief summary of this means that many people who are on the low income tax bracket will be pushed into the higher tax bracket, and as a result will likely incur losses on their BTL portfolio. Many of those who are already in the high tax bracket will find many of their deals not working and making losses.

It’s a wholly unfair policy and the latest news is that a couple of landlords have successfully setup a crowd funded campaign to fight this policy in the courts via a Judicial Review. More info about this here. Needless to say, here at EY Property we wholly support this action and give it our complete backing.

The second change that was introduced to the public in the autumn statement of 2015 was the hike on stamp duty for anyone buying a second property. Effective from April 2016, all purchases of additional properties will incur an addition 3% stamp duty charge that would be payable within a 30 day period.

A second property is anything from a buy to let flat, to purchasing a home for your children, to having a holiday home on the coast, and everything in between. It is effectively an unfair tax on property as an asset and it seems to penalize small landlords more as this stamp duty is not applicable to corporate landlords or company landlords with more than 15 properties.

As if that wasn’t enough

Osborne decided also end of last year that the Bank of England would receive more powers to control and regulate the BTL market in response to the fear of this segment creating a bubble that could affect the entire economy.

No further news of this so far, but suffice to say it clearly makes a statement about the Government’s position on landlords.

Incidentally, whilst all these measure are being touted as a response to help first time buyers and in some way help towards the housing crises, the effect of them will actually be the reverse. What is even more frustrating for individual landlords is that the notion that these measures only affect 1 in 5 of the wealthiest landlords, as the Government put it, is ludicrous because in fact Clause 24 only attacks those landlords with large mortgages, and the wealthiest landlords are not affected because they typically buy without mortgages.

So these are the 3, what next?

The combo of these 3 changes has left many a landlord looking forward and wondering should they stay of should they leave the BTL market, which would mean selling their properties.

There is a cocktail of dangers that are fast approaching and the trouble with all this is that the group of people who will suffer the most are the tenants and first time buyers. If landlords decide to sell, there will be a supply of houses on the market, but there will also be a lot of tenants that get evicted. All those tenants that would have been saving to get on the ladder are now in an even more precarious situation, most likely needing to spend money on short term accommodation and then looking for somewhere else to rent. The sudden drop of supply of private housing will inevitably increase rents and thus the tenant can get back to renting and security, but is paying a lot more for the privilege.

The alternative situation is that landlords who don’t sell, will end up increasing their rents, both as a response to the increased tax, but also because of the increase in demand as less rental homes are on the market due to other landlords selling.

In both cases, rent will inevitably need to increase, and there lies the answer to the question asked at the beginning.

No matter what happens, rents are set to increase at record levels and as a landlord, although you might be paying more tax, you’ll also be getting much more rent. It is simple market economics of supply and demand, and right now we already have a supply issue with demand rising through the roof.

When you add the new changes coming into effect, on an already pressured market, there’s only one way the rent is going, and that is up. It’s like the price of gold or diamonds, it’s rare, there’s a limiting supply and the demand for them is extraordinary.

The saddest part about all this is that in their short-sightedness, the Government’s attempt to help the housing crisis is only going to make it worse. As has been said time and time again, the only way to help the housing crises is to build more affordable homes. Satisfy the supply and the demand and prices both for buying and renting, will stabilise and become better for first time buyers.

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