Summer Budget 2015 – Landlords Reactions

The comments are being made on other forums and whilst some will find counter comments being made here annoying they do help to highlight the possible thinking behind the changes in legislation. As on any forum not everybody will agree and I think there is some merit in allowing these comments providing they are constructive and they do not include insults.

Why would prices need to increase? If the demand drops out from investors/btl and is more attractive for a standard purchaser then surely that will happen? Bare in mind there has been alot of previous owner occupier homes that are now rented properties, there is no reason why this could not reverse back in areas. The demand is there as the population is growing.

Basic supply and demand. If the number of properties available to rent goes down rents will increase.

Look back at rent levels as both monetary amounts and yields against property values for 10 – 15 years ago and compare them to today – you will find that rents were more expensive in real terms 10 – 15 years ago.

Yes the properties will still exist but the assumption that those renting will want to buy the same properties is incorrect. As you say the population is growing and thus the only answer is for more properties to be built – moving existing stock from one sector to the other does not address this.

More people are choosing to rent now because they can afford to. If you think corporate landlords will be more competitive have a look at these and compare them with other properties in the area

http://www.eastvillagelondon.co.uk/

One of the big advantages of private landlords is that you have a mix of owner occupied properties and rented properties in an area. Owner occupiers tend to care more about the area they live in than tenants that may move on after 12 months.

Reply to the comment left by “David Gray” at “01/12/2015 – 10:08“:

David,

There are many issues at play here.

First and foremost, there are not enough houses in the market, 400,000 new homes over 4 years is not enough, this creates a demand for the properties that are there. Hence higher property prices what ever happens. I believe that the new help to buy will only force them higher as builders know they can get up to 35% from the government now, so they can charge even more for a house as it’s subsidised fro the get to + the help to buy ISA but not enough houses to actually put the people in.

Second – You can’t force someone to sell. Therefore higher taxes on properties, income of landlords, or any other cost is going to increase rents. The new landlord tax will mean an increase of 100 pounds a month in tax for myself. So to fund this either i raise rents or sell. Since no-one can force a landlord to sell most will raise rents.

You raise a good point, rented can go back to owners housing, but I know from renting that to save up to buy many people move back in with family, so this would not solve the issue as a family that lived in one house would now be in two or three or four given by the number of children that are going to buy other houses.

You raised another point about companies raising standards, I lived across from social housing and because a company had to fix things that had to wait weeks for the right engineer to call, call a call center (we all hate those) and then wait longer to other issues fixed. Granted some landlords are crap but others are good. I myself have gone over to my tenants on a Sunday night as she got the washing machine locked and it had her young ones school uniform locked in the washing machine. Now I doubt a company owned house would bother with that. That is the thing that you lose by getting rid of small landlords.

I agree that thing need to be done to make sure that landlords are following all the rules but just taxing them is not necessarily the right way to do it.

Certainly agree that you need rented tenure properties in areas, because as you say people don’t want to buy and need flexibility. However if tenants can’t afford to pay the rents they wont take the rental property or will default on the payments, resulting if ongoing with different tenants to the rents lowering or the selling of the property to the next landlord for a reduced rate which will then possible work for a lower rent. I’m not against rental properties, I’m just concerned from the last 15 years people have been brainwashed to get a single btl or two by media etc, and with things like right to buy, btl mortgages availability poor future pensions etc it has pushed demand up everywhere. So in my view this move is trying to stop this flow of people hoovering up cheaper properties as a sideline. To genuine landlords who run a business it must feel like a kick in the teeth, as it has been promoted as a good thing to do by media/government over the past years.

Can someone clarify at present I can claim 100% of my but to let interest against the income then from tax year 2016-2017 (tax due by 31 Jan 2018) I can claim 75% interest. Also I won’t be able to claim ct and utilities, in voids also wear&tear goes last three assume from when ?
Another thing sdlt on second homes is it 3% for all property I mean from £1 to £125k and does this include land and plots also is the sdlt blanket or only unincorporated pay it as I understand the Finance Bill discriminates against unincorporated landlords, apologies if this has all been asked before but it’s still murky I just remembered think last three things are from April 16 ? Thankyou.

Reply to the comment left by “David Gray” at “01/12/2015 – 10:08“:

Hi David,

The prices would need to increase because Clause 24 won’t just increase the rate of tax that landlords pay on their profit. It is divorcing the calculation of that tax liability from a BTL landlord’s actual profit, and using primarily the value of an outgoing instead. For many landlords, the new tax liability + mortgage repayments will exceed the current monthly rent they are receiving. So they will have to increase the rent to pay both the tax and mortgage, and keep the roof over their tenants’ heads.

Furthermore if a proportion of landlords sell-up, there will be further upward pressure on rents in the market as a whole caused by the reduction in the supply of rental properties.

Part of why I am so sure of this is my own experience of renting and renting out. I am letting to people who specifically want to rent because they are new to their jobs or residing in town or the country on a temporary basis. Last time I had to re-let I had 8 consecutive viewings in one day by people fitting this profile, and ended up having to make a hard choice between 3 who wished to move-in.

My point is that there is a constant and growing demand for rental properties, largely because people are working and living on a more mobile and changing basis. If landlords like myself disappear, people like this will still need to rent and be left chasing fewer, more expensive homes. Clause 24 is going to royally screw them over in this regard.

Here is a further email I have sent to Ian Cowie this morning –
Ian, Here is an example.. approx. figures for simplicity of understanding:
Property Portfolio which has been built up over 20 + years for the purpose of providing a pension
Current market value – £17m
Loans outstanding – £6.5m (ie 37.5% gearing)
Gross Rental Income – £560k
Expenses (agents etc..) – 90K
Loan Interest — 260K
Net Rental Income – £210k

Pre-Budget Tax Rules:
Tax based on Net Income of 210K – Fair
Tax payable – £94K (45%)
Net Income after tax – £116k

Post Budget Rules – if Interest rates remain the same
Tax based on “artificial net income” (as only includes 20% of Interest) 418K
Tax payable – £188K
Net Income after tax – 22K
Effective tax rate on real net income is 90% Is this Fair??

Post Budget Rules – if Interest rates rise by 2% over the next 5 yrs
Loan Interest is now 390K
Tax based on “artificial net income” (as only includes 20% of Interest) 392K
Tax payable – £176K
Net Income after tax = MINUS 96K
Effective tax rate on real net income is 220% Is this Fair??

In conclusion Ian – do you think it is fair to pay tax at 90% let alone 220% on a business which you recommended in 2012 as a good investment? I personally would classify a tax rate of 220% as being what some journalist called “Alice in Wonderland” taxation policy. Clearly from your campaign in the Sunday Times you think this is fair and reasonable. My guess is that you have not invested in BTL and therefore can only assume that your campaign is motivated by what they call “politics of envy”. I do hope if nothing more that you start to realise that the proposals you pushed are not at all fair and reasonable.
Natalie

Reply to the comment left by “David Gray” at “01/12/2015 – 10:08“:

Population is indeed growing and this means that people need more property to be built.

Landlords have purchased upwards of half of all new properties built in the last couple of decades. If that had not have happened and prices would not have increased many of those properties would not have been built.

What the new tax measures have done will dampen the enthusiasm of landlords to invest. This will have a knock on effect to new property development, i.e. there will be less of it.

Population will continue to increase.

More people will be competing to buy or rent properties and this will drive prices upwards because demand will increase whilst supply of new properties built will fall.

Those people who cannot buy because they don’t qualify for mortgage finance will be worst affected because the remaining landlords will inevitably cherry pick and rent to people who can afford to pay more.

The Government want more people to become homeowners so the fact that landlords will be selling some properties (upwards of 1 million over 5 years IMHO) will be what many people want, especially the agents who are currently experiencing record lows in terms of numbers of property to sell. However, only the lucky million who are ready, willing and able to get mortgages will benefit. The rest of the growing population will be competing with an ever growing number of people who want/need to rent properties, however, the pool of available rental properties will be shrinking. Many more of these people will find themselves shoehorned into shared properties.

Most people, including government cannot see this coming and that is a very sad state of affairs.
.

Reply to the comment left by “Natalie Wilmot” at “01/12/2015 – 11:17“:

Hi Natalie

Your figures are an eye-opener considering that your LTV is only 37.5%. And your conclusion is very pertinent. However, some of the figures need correcting.

HMRC will not deduct 20% from the interest to leave 80% and include that as income. They will disallow it 100%.

What they will do is grant 20% of the interest as a “relief,” and apply this relief by deducting it from the amount of tax that they calculate.

Also, you will not pay 45% on all of your rental profits unless you also have income in excess of 150k from other sources. Obviously I do not know if this is the case.

I recommend that you download the spreadsheet from the first paragraph of the article at the top of each page of this thread, and enter your figures in the worksheet called Calculator.

Assuming no other income, your tax will go up from 81k to 146k, an effective rate on real profit of 69.5%.

To maintain your current level of profit after tax you would need to increase the rent by 118k, or 25%.

If interest was 390k, the tax now would be 21k, but in 2020/21 it would be 120k, or 150% of the real profit.

So after looking after your properties for a year you would pay all of the real profit to the state, plus a penalty of 50%. This would leave you with a loss after tax of 40k.

As you say, not fair or reasonable. unatic, more like.