Letting agent pens open letter to Michael Gove

Letting agent pens open letter to Michael Gove

0:02 AM, 22nd March 2023, About A year ago 9

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An estate and letting agent in Leeds has written an open letter to Michael Gove urging the Government to address the chronic shortage of rental properties available in the private rented sector (PRS).

The firm, HOP, says that the situation is driving rents up and making life increasingly difficult for tenants.

The letter to the Secretary of State for Levelling Up, Housing and Communities, follows a consultation with HOP’s landlord clients, tenants and other industry professionals working in the PRS.

As well as addressing the current challenges, the letter offers recommendations about how the Government could slow the exodus of landlords who are selling investment properties and exiting the market.

One of West Yorkshire’s largest rentals portfolios

The agency manages one of West Yorkshire’s largest rentals portfolios, worth more than £245 million, and expects rents to increase by another 7% in 2023 – after a 10% rise last year.

The company, which has offices in Leeds city centre, Horsforth and Pudsey, recommends:

  • Removing the 3% additional homes stamp duty and instead charge landlords selling additional homes the 3% stamp duty levy, to incentivise landlords to purchase new buy to let (BTL) properties
  • Incentivising the transfer of BTL property into limited company ownership by removing the 3% stamp duty levy for a 12-month period. This would enable landlords to pay tax on profit rather than revenue and would help to professionalise the industry further
  • Providing more certainty over upcoming rental reforms and streamlining and simplifying the Section 8 eviction process. This would enable landlords to evict bad tenants and ease their concerns about the removal of Section 21s.

Designed to make buy to let (BTL) properties less appealing to landlords

Luke Gidney, HOP‘s managing director, said: “Legislation, red tape and tax changes that were all designed to make buy to let (BTL) properties less appealing to landlords, have had a bigger impact on the rentals market than anyone could have imagined.

“Unfortunately, Chancellor Jeremy Hunt had an opportunity to address this in the Budget but failed to do so.”

He added: “We’re now in a position where demand for rental property is higher than it’s ever been, and tenants are finding themselves in fierce competitions for available properties and having to pay record rents, which comes against a backdrop of sky-high energy bills and the cost of living crisis.

“Plus, tenants now often find themselves stuck wherever they’re living and are moving less regularly, for fear of not being able to find and secure another suitable home.”

‘More housing stock in the private rented sector’

Mr Gidney continued: “More housing stock in the private rented sector would give tenants more choice and ease the burden on rents.

“It’s a critical situation and although we primarily represent our landlord clients, it’s also important that our tenants, and thousands like them, have a voice as well.

“We hope the Government will listen to the views of the industry, as well as our recommendations, and take steps to ease the problem.”

Open letter from Mr Gidney to Michael Gove

The open letter from Mr Gidney to Michael Gove reads:

Open letter to Secretary of State for Levelling Up, Housing and Communities regarding the private rented sector in the UK.

Dear Michael Gove,

I am writing to you as the managing director of one of Leeds’ largest letting agents, which manages a large property portfolio in the area.

Although we manage these properties on behalf of our landlord clients, I’m actually writing on behalf of our tenants, and millions of people like them in the UK, who live in the private rented sector.

In recent years the raft of legislation, red tape and tax changes designed to make buy to let (BTL) properties less appealing to landlords, combined with upcoming rental reforms, Section 24 tax, changes to capital gains tax thresholds and EPC legislation, have had a profound impact on the rentals market, with huge numbers of landlords selling their investment properties.

Although this was the aim of these changes, and some former tenants have had the chance to get on the housing ladder as a result, the shortage of available homes in the private rented sector has now reached a critical point.

Research from estate agency data specialist, TwentyEA, shows that during 2022, supply volumes reduced by 8% year-on-year and 25% since 2019. Analysis of HMRC data by chartered accountant, UHY Hacker Young also found that the UK lost 116,000 BTL properties in the last year alone, and as landlords face being squeezed by rising mortgage costs, we can already see that this exodus will continue in 2023.

Eroding landlords’ margins has had the desired effect and made BTL a far less appealing asset class, but tenants are suffering as a result. This includes the many people who live in private rented property, either because they specifically want a short-term home, or enjoy the freedom it offers, or they don’t have a deposit to get on the property ladder.

Tenant demand for rental property is up by 10 to 12% nationally according to Rightmove, and this has pushed rents up by 10% annually in recent years and we’re forecasting that they’ll increase by a further 7% in 2023 in West Yorkshire alone.

Potential tenants now regularly have to bid against each other to secure rental properties, which is driving rents up further, and it’s a similar story across the UK.

Plus, when all this is combined with soaring energy bills and the cost-of-living crisis, it’s likely that more tenants could slip into arrears and find themselves in financial hardship.

The problem is predominantly due to a chronic undersupply of private rental stock due to landlords leaving the industry. Void periods between tenants are now just five days on average in West Yorkshire and tenants are generally staying longer in properties and moving less, for fear of being unable to find a replacement property. Approximately half of tenants now report being worried about the difficulty of finding a home to rent.

This huge imbalance in supply and demand is also allowing unscrupulous landlords to get away with letting out poor quality homes and generally leading to a decline in the quality of rented housing, as landlords don’t need to upgrade properties in order to secure suitable tenants for their properties.

If there was more housing stock available in the private rented sector it would give tenants more choice and ease the burden on rents.

A petition is now calling on the government to reverse the Section 24 tax changes for BTL landlords, which prevent them claiming mortgage interest against their tax liability. However, after consulting with our team and landlord clients, we have an alternative and potentially more workable recommendation.

One immediate way to stem the tide would be to remove the 3% additional homes stamp duty and instead charge landlords selling additional homes the 3% stamp duty levy. This would incentivise landlords to purchase new BTL properties.

I would also recommend incentivising the transfer of BTL property into limited company ownership by removing the 3% stamp duty levy for a 12-month period. This would enable landlords to pay tax on profit rather than revenue and would help to professionalise the industry further.

As well as this, landlords would benefit from more certainty over upcoming rental reforms. Streamlining and simplifying the Section 8 eviction process so that landlords can evict bad tenants would help to remove the concerns landlords have about the removal of Section 21.

Finally, simplifying the planning process so that small builders and developers can build more homes would also benefit and support tenants and buyers, alongside whole swathes of the wider economy.

I hope you find this letter constructive and look forward to hearing of any progress made and of course, if you, or any of your colleagues, would like to discuss further, please feel free to contact me.


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Comments

Neilt

11:16 AM, 22nd March 2023, About A year ago

3% additional stamp duty on selling additional homes? No thank you.
And of course, were he to make all of these recommended changes, Labour would reverse them all and more when they win the next general election.
I'm afraid that the writing is on the wall and it's not going to go away.
Signed, cup half empty...

Ade T

11:39 AM, 22nd March 2023, About A year ago

Having paid the 3% excess stamp duty levy on purchases of rental property since 2016, the last thing I want is to pay another 3% levy when I sell those same properties.
The first half of your letter reads well. However, the solution you suggest involving a further tax on sale of property would be just another reason for me to sell more quickly before such a tax came in. What you're proposing is basically an extra quasi capital gains tax hit on sale that would run alongside the current decimation of CGT relief. i.e reducing net sale proceeds/reducing my pension.

JB

12:08 PM, 22nd March 2023, About A year ago

3% additional stamp duty on selling additional homes

No way! ...and if your property increases in value, 3% of the sale price will be more than 3% of the purchase price

TheMaluka

12:23 PM, 22nd March 2023, About A year ago

Stop treating landlords as second home owners. There is some justification in penalising those who own a second property which is mainly unoccupied, especially as there are many without a first home; landlords do their best to keep properties continuously occupied.
Let us get away for the property owning democracy attitude and allow individuals to make their own decision as to whether to rent or buy.

Freda Blogs

12:41 PM, 22nd March 2023, About A year ago

Cheeky so and so - I wonder who he consulted before he wrote this letter to Gove. His role is to represent landlords, not throw them under the bus.

Creating a limited company does not necessarily mean professionalising the sector; they are non sequiturs. As an owner of property in personal name and in a company, I can say that a company can simply lead to more admin rather than less, and I think we already have more than enough - hence part of the reason why LLs are selling.

As for the extra 3% tax on selling - did I read that correctly? Not sure exactly how that would work, especially if we've already paid at purchase, and whilst CGT is paid on inflation. We've invested significant time and personal money into this business, and he thinks it OK to volunteer extra taxation on our behalf? I'm too polite to write what I really think of this suggestion.

I hope his current clients sack him and tell him why - he's doing them and the rest of the PRS no favours whatsoever.

Graham Turrell, Landlord & Entrepreneur

13:04 PM, 22nd March 2023, About A year ago

Interesting. Unfortunately, as to be expected he seems to be favouring future landlords at the expense of the existing landlord base.

I can understand the approach of trying in the name of pragmatism to "speak the language" of an anti-landlord government rhetoric that is now ingrained in governmental psyche, but it just plays into their hands.

If I were Gove reading this, I would see it as a green flag for rent controls.

Really helpful.

PH

15:23 PM, 22nd March 2023, About A year ago

As someone else has recently posted here...re the 3% selling stamp duty please politely Foxtrot Oscar !
BTL mortgage increases, higher stamp duty on purchases, cgt relief reduced to next to nothing NOW some idiot suggesting another 3% duty on selling...that's a sure fire way of reducing the number of current landlords and making it look less and less attractive for prospective landlords. Jeez from where do these people get these ideas !

Dylan Morris

9:39 AM, 23rd March 2023, About A year ago

Doesn’t Mr Gidney understand that all these Government measures (Clause 24, extra stamp duty, no tenant fees, EPC etc etc) are all designed to reduce landlords portfolios. The Government want a reduction in the number of rental homes that’s what these policies were actually designed for. And they’re working really well.

TheMaluka

10:00 AM, 23rd March 2023, About A year ago

Reply to the comment left by Dylan Morris at 23/03/2023 - 09:39
How does this tie in with the government's desire to reduce homelessness and keep rents low?

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