Landlords buy to let boom

Rented homes are desperately needed, so why are landlords demonised?

Comment: the public – and the Government – are wrong to persecute private landlords who provide a vital service, writes Alan Ward

By 2025, one in four households will live in the private rented accommodation, says PwC, as a result of cuts to social house building and private developers being “cautious about expanding too rapidly”.

Why, then, has the Government pulled the rug from under the feet of landlords? Why is it doing everything to deter them from investing in new homes?

Increasing numbers of people are choosing renting as a lifestyle option, and 80pc of tenants are satisfied with their current landlord. Yet landlords are consistently being demonised by politicians, including now by the Treasury.

Almost nine out of 10 landlords are individuals, owning 71pc of all homes in the private rented sector.

More than three-quarters of landlords own just one rental property. According to a survey by the Residential Landlord Association, over 60pc believe that the Chancellor’s decision to restrict mortgage interest relief for residential landlords to the basic rate of income tax will push them up a tax band despite their income not increasing. Why? Because tax will be applied to turnover instead of to profit.

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Faced with this and with many landlords, contrary to popular belief, not rolling in money, it is little wonder that 75pc of landlords, according to further RLA data, are expecting to increase rents to cover the costs of the Chancellor’s plans.

Delivering his Budget, the Chancellor’s argument was that it was unfair that landlords are treated more favourably within the tax system than owner-occupiers. Politically, such statements go down well as the Chancellor seeks to re-establish the Conservatives’ credentials as the Party for homeownership.

But using landlords, many of whom are Tory supporters, as the scapegoats for the continued failure by all parties to get to grips with the housing challenge is no answer.

Landlord Connie Cheuk at her home in Sussex. Her rental properties are in Worthing and Portsmouth  Photo: Philip Hollis

Landlord Connie Cheuk at her home in Sussex. Her rental properties are in Worthing and Portsmouth Photo: Philip Hollis

Read here how Connie Cheuk (pictured above), a landlord with five properties, will see her tax bill rise by almost 40pc. She is even contemplating giving up her 18-year career as a teacher as a means of reducing the tax impact Beyond the rhetoric, the evidence is clear that the Chancellor’s assertions are wrong. As Paul Johnson, Director of the Institute for Fiscal Studies has noted, “rental property is taxed more heavily than owner-occupied property”. Unlike homeowners, landlords are taxed on both rental income and capital gain, a point supported by the Conservative’s favourite think tank, Policy Exchange.

Independent research for the RLA has indicated that each private sector tenancy nets the treasury an estimated £1,000.

The Chancellor’s gamble, indeed hope, could well be that the Treasury will offset likely losses in the supply of rental homes by a spike in capital gains tax receipts as landlords look to sell up. He would be wrong to assume this.

With many buy-to-let properties having been purchased at the peak of the most recent housing boom, the prospect of any significant capital gains having been made between then and now are poor.

And what of foreign investors? The complaints in London especially have been about these investors buying property and crowding out locals. Why is it that the Chancellor’s Budget decisions will penalise home-grown investment without touching those from abroad?

It is crucial that the Chancellor uses his forthcoming Autumn Statement to support the country’s landlords to invest in the new rental homes the country desperately needs to meet demand and raise standards. As a start, the Chancellor needs to look again at his mortgage interest changes and, if he is not prepared to hit the pause button, at least make clear that they will not be in any way retrospective. They should apply only to new mortgage lending.

Further measures to stimulate supply should include encouraging development by landlords on small plots of unused public sector land that corporate investors do not find attractive. Capital gains tax (CGT) roll-over relief should apply where the proceeds of a rented property are re-invested in a rental property – and CGT should be removed where a property is sold to a sitting tenant or first-time buyer.

The Chancellor also needs to make it clear that devolved powers to combined authorities will not include the ability to introduce new forms of rent control. All the evidence is that these serve only to stifle investment and diminish both the supply and quality of housing.

The Chancellor has an opportunity to reset his approach to individual landlords.

The potential is there for the private rented sector to meet many of the Government’s housing ambitions.

Alan Ward is chairman of the Residential Landlords’ Association

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