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Are We At Peak Landlord ?

Thousands of Irish landlords will be given millions of euros worth of Budget 2019 tax breaks to stop them from fleeing the market before any fresh clampdowns are introduced. It is thought that the Irish Government will confirm that landlords will be given 100% mortgage interest relief on any loan used to pay for a rental property from next year alongside a separate scheme involving a 4% annual capital gains tax relief capped at five years for landlords who buy and retain a rental property where someone is already living. In addition, a three-year €300m affordable housing scheme will see  9,000 homes built a year and a €154 Housing Assistance Payment budget rise are all in the Irish Governments proposed package for the rental sector. Read More

Compare what the Irish Government are doing with what has happened over the past two years in the UK and you have two very distinctive takes on how valued and important private landlords are. Here in the UK, have we now come to a point where we have reached Peak Landlord ?  Recent reports might lead you to that conclusion……

A report released by the Royal Institute of Chartered Surveyors (RICS) paints a picture of rising rents and a reducing number of private landlords, and as far as the RICS is concerned, the blame lies squarely with the Governments treatment of private landlords and the PRS.  From a deliberate attack on tax allowances, to the ill thought through Right To Rent (landlords acting as border agents) to the rip off local government accreditation schemes, landlords have simply had enough.

We can only guess what George Osborne intended when he removed mortgage tax allowances and other tax incentives from the PRS and increased stamp duty on second and subsequent home purchases, but what we do know now is that it was the catalyst for the start of the end of the Buy To Let phenomenon. It is highly likely that his aim was not so much the raising of revenue for the treasury (although they are never against that!) but moreover to put a stop to, or at least dramatically reduce the number of individuals investing in the Buy To Let sector, and if that was the reason then it appears to have worked. What is currently a trickle of landlords leaving the sector is forecast to become an exodus, as more and more legislation and financial cost is piled upon the sector, and the recent Tenant Fees Bill has added more regulation and more costs to the life of a landlord.

Many individuals entered the Buy To Let sector as an alternative to their poor performing pensions and their even worse performing savings accounts, and who could blame them?  Others entered the sector by complete accident, never intending to be landlords, but often inheriting a property which they either couldn’t sell or didn’t wish to sell at the time. Now, many years later, the housing market has changed, many have had their experience as landords and didn’t like it, never realising the cost and the hassle of Buy To Let.  On top of this, the political and social environment in the rental sector has become much more hostile. So who can blame the many “accidental landlords” and smaller scale landlords from cashing in and using their cash to buy that longed for Motor Home or Holiday Home, thats much more fun!

And there are those landlords who make a living from this complex sector; we know them as the “Professional Landlord”.  Whilst it’s acknowledged by most that the “accidental landlord” would eventually leave the sector when the time was right for them, the case for the “Professional Landlord” is somewhat different. They have a different stake in the private rental sector and for private landlords to be considering quitting the sector is something the politicians need to be concerned about.  Let’s face it, professional landlords are not in this sector for altruistic reasons (although there are many great landlords who do help their tenants in more ways than are ever reported),  they are in it for financial reasons and if those financial reasons do not exist, then there is absolutely no reason for them to stay, it would be the same with any business.

Some professional landords will stay the course and some, (but not all) will take advantage of the inevitable rise in rents, the laws of supply and demand never change, even in the hardest political environment. How these professional landlords deal with regulation and a very inhospitable tax regime only time will tell.  But typical of this Government and its attack on private landlords is their complete lack of foresight; because when landlords do start to exit the sector in large numbers, who will be there to replace them if the sector is hindered through an inefficient tax regime, over regulation and a political ideology which creates a hostile environment?  Even today, when we are arguably at “Peak Landlord” there are not enough properties to supply the demand in the PRS, so in a growing population, which is far more demanding of housing flexibility than it ever was in the past, the future of renting in the UK does not look rosey!

If the Government are hoping that the Corporate Sector will step up to the plate and take up the slack through such schemes like Buy to Rent, they need to beware that corporations do not like over regulation, they do not like bad or unfair tax regimes, they do not like uncertainty and they do not like hostility, either from the consumer or from the politicians.

Government inhospitable tax attack, income & stamp duty

The controversial removal of tax allowances under Section 24, and the assessment of profit based on turnover is unprecedented in the history of business in this country and put simply, is an attack on small businesses. Section 24 of the Finance (no. 2) Act 2015 means that over half of UK landlords will be pushed into a higher rate of tax despite their income not having increased, and many will end up renting at a loss.  Why would anyone allow themselves to be pushed unnecessarily into a higher rate tax band ?  But if this in itself is not a good a good enough reason to quit the sector, let’s take a look at some others which might be;

Local Council Accreditation Schemes.

We think this is going to be the biggest single reason why landords will leave the sector and the government really do need to get to grips with it. It’s not because landords are unwilling to be regulated, there is little doubt that they have shown that they are. It is because Accreditation Schemes and their cost are simply expensive and unfair  and offer nothing in return (although this may change due to a Judicial Review of HMO Licensing – read more).  To give you an idea of the cost of these schemes, and which direction these licensing schemes are heading, the Nottingham wide licensing scheme registrations (yes, Nottingham are not messing around, they’re licensing the whole of the city!) is £780.00  per property whilst in Leeds, for one post code area the cost is £825.00. These are just two examples of an expanding system of licencing. For landlords, this is a huge amount to pay out per property so to think that this cost will not be passed onto the tenants is pure madness.  And to add insult to injury, these fees are none transferrable, which means that if a landlord sells the property to another landlord, the new landlord has to pay for a new licence fee!  That does not sound at all fair to us; if you drive four cars, do you need four driving licences ? Landlords are not against being licensed, providing it is a fair scheme, but nobody will convince landlords that these licencing schemes are anything other than a tax raising scheme.

Minimum Three Year Tenancies.

We’re not really sure how this will work and if we’re not sure, it doesn’t bode well for those out of touch civil servants in Whitehall but the ONLY way this could work is for tenants and landords to be allowed to opt in or out of a mandatory three year tenancy.  Landlords have their ears to the ground and know more about what their tenants want and what they need, more so than some Whitehall mandarin who is only listening to Generation Rent and Shelter. (Shelter who by the way have never let out a single property!).  Landlords are saying very clearly that long term tenancies are not needed and that the short term system works perfectly well so mess with it at your peril.

Tenant Fees Ban

Soon, Landords and Agents will no longer be even allowed to cover the basic cost of such important things as Background Credit Checks, ID checks, and Right To Rent Checks (which the government insist we do). What exactly is wrong with charging tenants for their credit searches and their background checks?  Do the powers that be realise that tenants don’t always tell the truth, they conveniently forget that they have a large outstanding county court judgement, or that they were once evicted from a tenancy, only remembering when presented with the information on the credit search!, why should a landlord have to pay for someone else’s lies?   And what exactly is wrong with charging tenants for the cost of setting up a tenancy, providing it is reasonable and not excessive?  If you apply for a mortgage, you will be charged for such things as the valuation fee, the lenders administration fee and even a product arrangement fee, often running into thousands of pounds.  Landlords are not against the regulation of  Tenant Fees, and even a cap on the fees, but to ban them outright is grossly unfair and just one more reason why landlords are leaving the sector.

Increase in Regulation.

Companies are used to regulation and in this Country, on the whole, companies are pretty good at being regulated.  We are aware that regulation is needed to weed out bad practice There are now over 150 regulations which landlords must follow, and there are more on the way.

A Labour Government will beat the private landlords to a pulp!

If landlords thought that the support they receive from the present Tory Government is inhospitable and not conducive to conducting business in a fair way, just wait until (if) a Labour Government comes to power, then it really will become armageddon for landlords.  To be fair to them, and unlike the current government, the Labour leadership and their supporters have made no secret of their distain for private landlords.

Rent Caps (Labour).

This is probably the first thing that a Labour Government will do.  Rent controls have been used in the UK before, with the majority of privately rented homes being subject to some form of rent control until the late 1980s.  Local officials set the maximum amount that could be charged based on the age and location of a property, the quality of any furniture and the assumption that there was no shortage of other, similar homes for rent in the area. This resulted in an inherent under-investment over a number of years in housing stock and important property maintenance as landlords just didn’t have the funds to invest and lenders and funders were not interested in the sector.  Everyone knows it won’t work, but they will do it anyway.

Removal of Section 21 Possession

There is now a strong movement for the removal of the Section 21 possession notice. Those wishing to abolish it refer to it as “No Fault Eviction”, it’s a way of gaining empathy for the tenants who are evicted under this method.  Because of the use of this term, it makes it sound like tenants are being evicted through absolutely no fault of their own, and by implication, only the landlord can be blamed for their situation.  But dig deeper and you will find that the majority of Section 21 Notices which make it to Court, are actually served because of problems with the tenancy, usually rent arrears, and Section 21 is used by landlords because the alternative, which is Section 8, is complicated and often unfair.  Do you know of any other business which is legally obliged to provide a service to a customer who doesn’t pay for that service, and the only way that business can get their hands on what is rightfully theirs, is to take their customer to court whilst that customer is still using the product and not paying for the service? You couldn’t make it up!

The removal of the right of a landlord to refuse pets

In the UK, I’d like to think that we are all still animal lovers, but loving animals should not mean that you have to accept them as the default position in a tenancy, should it?  Landlords who do not allow pets, do so because of previous experiences, usually bad ones!. Badly behaved pets cause landlords lots of problems;  bad odours, torn and ripped carpets and furniture, dogs that chew door frames, skirting boards and kitchen units.  Dogs that constantly bark and upset neighbours because they are left alone all day. tenants who don’t look after their pets and don’t know how to look after their pets,  the list goes on. Under Labour’s plans, which it says it wants to discuss with landlords and tenant bodies, there would need to be evidence that the animal was a nuisance for permission to be refused.  Who’s going to pay for the damage, for the smells, because from experience, we know that the tenant won’t? This proposed policy is ridiculous and an interference in something that has nothing what soever to do with the government. It is landlords who are the best people to determine whether they want to allow pets in their properties, not tenants and definitely not the government!

5 year minimum tenancies

Our thoughts on the conservative governments policy for the introduction of an unnecessary three year tenancy is only exasperated by the fact that the labour party want to introduce a minimum five year tenancy!  A compulsory three year minimum tenancy period will wreak havoc with the PRS so imagine what a five year minimum tenancy period backed by a labour government would do !

£30,000 minimum fine!

In September 2018, Labour tabled a motion which would see “unscrupulous landlords” handed a £30,000 fine for a first offences, and an unlimited fine for any further offences ! The worrying thing here is what exactly is their definition of “unscrupulous landords”?

 


Add all of the above to the realistic fact of more tax rises for landlords and the inevitable interest rate rises and nobody could possibly be surprised that landlords are now selling up. And whilst we are not professing to be expert economists or even predictors of the future, it’s hard to see just how the two main parties will be able to support private renting in the UK without undoing most of the damage that has and will be done, but by then, it’s likely to be too late.

Without the private landlord, there is no Private Rental Sector, and without the Private Rental Sector there will be nowhere for Generation Rent to live. Governments will have a serious political and financial problem on their hands if they reduce the size of the PRS when the population is on the increase, and  they will never have the public money to build the huge amount of houses needed for the rental sector.

Given everything we now know, why would anyone remain a landlord?  Well, they don’t have to, because the one major point that the politicians have alarmingly overlooked is that it is not mandatory to be a landlord, as things stand today landlords can sell their properties, which they are doing. Unless of-course the politicians bring in a law to stop landords from doing so, and  let’s face it, that is not beyond the realms of possibilities!

 

landlords en-mass are now saying; 

‘We’re off, someone turn the light out when they’ve finished wrecking the PRS”! ,