Clause 24 and Housing Choice – An Open Letter to Labour MP Rob Marris

Clause 24 and Housing Choice – An Open Letter to Labour MP Rob Marris

9:17 AM, 5th November 2015, About 7 years ago 22

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Rob Marris Labour MP

Rob Marris Labour MP

Dear Mr Marris,

I am writing to you in connection with Clause 24 of the Finance Bill which will restrict finance cost relief for individual landlords.

I am aware that you will have received a number of representations from landlords like me expressing their concerns about the Clause, a Clause which I know Labour is supporting.

I think we can agree that there is a housing crisis in the UK which is caused by a chronic shortage of supply. The question is how do we as a nation address the issue through policy.

Let me make it clear to you at the outset that I support proposals to increase home ownership. For some, home ownership is the right housing choice.

I also support proposals to increase the supply of affordable social rented homes because in many parts of the country demand for this type of housing far exceeds supply.

It will come as no surprise to you that I also support the need for a strong and growing private rented sector, because for many this is the right housing choice. It is a sector which has grown in response to demand, especially at a time when the population has been increasing, lending criteria for potential home owners has been tightened as a result of the Mortgage Market Review (MMR) and there has been a decline in the number of social rented housing, because of right to buy legislation.

As the housing problem is one of supply, what we need is more investment in housing of all tenures. We need housing choice and to appreciate that people may move to different tenures as their circumstances change.

The problem with Clause 24 is that it will force portfolio landlords to sell houses as their business model will no longer be sustainable. Regrettably, tenants will be evicted. For those landlords that try to remain in the sector, they will be forced to pass on their increased costs to their customers and put up rents. There is already evidence that landlords are responding to Clause 24 by increasing rents. Investment in the private rented sector will fall dramatically.

I have followed the debate about Clause 24 very closely since the Summer Budget announcement. What has come as a surprise is that the only people who are pointing out that many thousands of tenants will be adversely affected are landlords. I have not heard one MP say that they are concerned that the Government’s Clause 24 proposal could have unintended consequences and that this could include increased rents for tenants and increased homelessness as a result of tenant evictions. It seems to me that the less well off in society did not cause the banking crisis, but are having to pay to lower the deficit. It is a surprise to me that Labour are supporting a Clause that could result in the less well off being disadvantaged.

It would help my understanding of Labour’s position on Clause 24 if you could:

Confirm if you believe that rents won’t go up as a result of this measure and explain your reasoning;

Confirm if you believe that tenants will not be evicted as a result of landlords’ reactions to the measure and explain your reasoning;

Confirm if you believe that Clause 24 will have no impact on the level of homelessness and explain your reasoning;

Confirm how as a result of Clause 24 the supply of housing will increase.

If you agree with me that rents will go up and the level of homelessness will increase, can you confirm if you think this is a price worth paying to achieve greater home ownership?

Response from Mr Rob Marris MP for Wolverhampton South West

Thank you for your e-mail.

Clause 24 of the Finance Bill introduces a restriction on the deduction of finance costs related to let residential properties, and instead provides for a tax reduction for such costs by reference to the Basic Rate of Income Tax. To put it another way, the change will essentially prevent residential landlords claiming Income Tax relief at the Higher Rate on interest paid on loans to buy a property to rent.

To give landlords time to adjust, the restriction and tax reduction will change gradually from the tax year 2017-18 over 4 years.

The background is that persons subject to Income Tax are currently able to deduct interest and other finance costs, such as the fees incurred when obtaining or repaying a loan, from the rental income in arriving at the profits of the property business, where the costs are incurred wholly and exclusively for the purposes of the property business.

Individuals are also able to make a claim to deduct interest on a loan to invest in a partnership when calculating their net income.

Clause 24 restricts those deductions for finance costs relating to let residential properties, and instead allows for a deduction from an individual’s Income Tax liability. The maximum relief that can be obtained is the Basic Rate value (currently 20%) of the total finance costs on loans referable to let residential properties.

This clause will ensure that landlords with higher incomes no longer receive the most generous tax treatment. Despite the concerns raised eloquently by you and others, this still seems to Labour to be the right thing to do.

Regarding your 5 specific questions:

1. Rents should not go up as a result of this measure. The reason is that there is competition in the housing market and, due the chronic shortage of housing in many parts of the country, many landlords already charge what the market will bear.

2. Tenants should not be evicted as a result of landlords’ reactions to the measure. Legislation provides some protection for sitting tenants. If a landlord sells, it is likely to be another landlord who buys.

3. Clause 24 will have no impact on the level of homelessness. There will be just as many houses and flats after the introduction of this measure as there were before.

4. Clause 24 is unlikely to cause the supply of housing to increase.

5. N/A

Rob Marris

MP for Wolverhampton South West


Maria O'Neill

14:37 PM, 5th November 2015, About 7 years ago

They haven't got a clue muppets who have no idea about business and the real world we are wasting our time it's gunna happen everyone needs to do what they can to protect themselves that's a consequence of our countries policies absolute no foundation backing up his answers

Abdul Khan

15:01 PM, 5th November 2015, About 7 years ago

Judging by this MPs reply , are we understanding Clause 24 correctly? This forum infers that rental revenue not profit will be taxed. I am getting lost. Landlords will pay more tax, tax has to come from somewhere. Therefore rents will have to rise or properties off loaded. Will there be a response to this MP?

The Property Man

17:47 PM, 5th November 2015, About 7 years ago

I have a large portfolio of properties and I keep them maintained to a very high standard for my tenants. Any maintenance with the properties are carried out asap. I am able to do this with the profit I make (yes that's right with the profit I make it just gets spent on the up keep of my properties, not on flash cars and holidays what some narrow minded people think landlords can afford to do !!!) when this tax restriction for landlords comes in I won't have the funds to keep on top of maintenance issues because I will be paying more in tax than I make in profit. This is going to cause havoc !! And I think landlords need to stand up to this before it's to late !!! I am a good landlord who is accredited by my local coucil like many other landlord but yet I still get tarnished with the same brush as rouge landlords as we are getting everything threw at us at the moment, the goverment need to be careful as many good landlords are going to move away from the private sector as it won't be worth doing in a couple of years the way things are going. I wouldn't mind most landlords just about cover their bills now after the cost of maintenance is spent on the upkeep of their properties to keep them to the standard the goverment expect. The goverment need to think about the implications this is going to have on everyone an not just landlords, and landlords need to fight against these changes !!


21:59 PM, 5th November 2015, About 7 years ago

Here is my reply to Rob Marris

Mr Marris,

Thank you for your reply. I am grateful for the time you have taken to explain Labour’s position.

I have noted with interest your answers to my specific questions. My response to each of your answers is as follows:

1. Landlord organisations such as the National Landlords Association (NLA), the Residential Landlords Association (RLA) and the Scottish Association of Landlords (SAL) have surveyed their members and the results clearly show that landlords will increase rents. Many landlords, including myself, do not increase rents annually when tenants continue with their tenancies. I have a number of tenants who have been with me for several years and their rents have not been increased. As a consequence, some of my rents are below the market value. It is these rents that I am now increasing in preparation for Clause 24 being implemented. Since July 2015 I have increased 4 rents. One rent was increased by 11.5%. Landlords I speak with are taking similar action. Simple economics also suggests that market rents will rise. As the supply of private rented sector homes shrinks due to landlords selling, the rents that landlords will be able to charge will increase as demand will exceed supply. You have acknowledged in your reply that there is already competition in the housing market due to a chronic shortage of housing. Competition for private rented housing will further increase as the supply of available properties diminishes.

2. You said that tenants should not be evicted as it is likely that houses sold by landlords will be purchased by other landlords. I disagree. Firstly, it is a fact that most landlords buy below market value and sell at, or close to, market value, as they are motivated to maximise profit. I will not be selling properties below market value as I wish to maximise my return. To do this, I will wish to sell with vacant possession to owners. I can only do this if I serve notice on my tenants. Other landlords will have a similar approach. In any case, Clause 24 is such a game changer that existing landlords will not be looking to expand and new entrants to the buy to let market will be deterred from getting involved by the punitive tax regime that it about to be introduced. The Bank of England is also looking at ways to temper the buy to let market and this is likely to have a significant impact with stricter lending criteria being introduced. Your assumption that landlords will sell to landlords is in my opinion flawed.

3. You said that there should be no impact on homelessness. Again, I disagree. A recent study from Shelter has shown that the most common reason for people becoming homeless is the ending of a private rented tenancy. More private rented tenancies will be ended as a result of this tax change and homelessness will increase as a direct consequence of Clause 24. Landlords who sell will sell to home owners as they will wish to maximise the amount of money they receive for their asset. At present, because around 1.5 million council houses have been sold under the Right to Buy legislation introduced by Margaret Thatcher in 1980, and the provision of new build social rented housing is constrained by public sector finance restrictions, the supply of housing for people who cannot afford to buy is at a 35 year low. Private landlords prop up the social rented housing sector by renting to tenants on benefits and on low pay. Clause 24 will reduce the supply of private rented sector housing and thus there will be less accommodation available for the less well of members of society (traditional Labour votes). Reduced supply of private rented housing, and continued high demand, will result in more people being made homeless and this will put a strain on local authorities who have a statutory duty to house applicants who present as homeless.

4. I agree with you that Clause 24 will not cause the supply of housing to increase. If we are in agreement that there is a chronic shortage of housing in our country, and that this Clause will not improve the supply situation, why bother with Clause 24. It will not address the housing problems we face. Clause 24 will deter investment in the private rented sector as a time when there is massive demand for private rented accommodation. The logical thing to do to increase supply to address housing need and demand would be to introduce tax incentives to increase investment in the sector as it is only though increased supply that the nation’s housing problem will be addressed.

Thank you once again for writing to me to explain why Labour is supporting the Conservatives on this issue. I would be interested in hearing your thoughts on the further points I have made.

Dr Rosalind Beck

22:21 PM, 5th November 2015, About 7 years ago

Nice one BTL. As you say, the irony is that the Government is going in the absolute opposite direction to that it should be going. I may post my exchanges with Rob Marris as well.

James Fraser

22:52 PM, 5th November 2015, About 7 years ago

Rob Marris is so gloriously clueless that it is a joy to see him parading his ignorance so willingly!

1. He thinks that if you restrict supply in a tightened market then rents won't rise. We know for a fact that they do and will. WE are the people doing this, so how does he know more than us about our business?!

2. He thinks landlords will sell to other landlords? Why? Where's his evidence? Id be evicting my tenants as soon as possible if it comes to sale.

3. He thinks tenants are somehow protected? Eh? So we can't evict them if we want to?? The guy hasn't a clue.

4. If C24 doesn't increase supply, which all housing tenures urgently need, then what does he think is the point of it?

5. He calls himself a labour politician yet offers no opinion on how evicted tenants at the bottom of the scale are to be housed, nor all of the social consequences that go with this.

He really needs a lot of landlords explaining the reality to him.

James Fraser

22:59 PM, 5th November 2015, About 7 years ago

Oh just thought...

6. He thinks landlords charge what the market will bear. They usually do not. They charge much less. But what he doesn't seem to grasp is that those market circumstances will change as a result of this and in a year or two's time 'what the market will bear' will be greatly higher rents than they are now.

It's frightening that these people walk among us.

Carol Duckfield

9:26 AM, 6th November 2015, About 7 years ago

I think you need to go back to him and explain the conseqence in terms of the facts and figures and figures showing how it makes landlords higher rate tax payers even though there may not be the profit to pay the tax due. And as a result the level of housing provided will be reduced as there will not be the money to re-invest

And counter his response to your questions
1. Yes the greater number of landlords there are then then the greater the competition and rent remain competative but reduce the number and the opposite is true and hes already stated their is a chronic shortage so his response doesn't stack up
2. Perhaps he should read up on eviction criteria as decision to sell is valid reason to terminate a tenancy. An empty property has greater market appeal, And why does he beleive another landlord will purchase it what grounds does he have for this comment
3. He's obviously not considered the properties may be sold to owner occupiers then. He;s obviously not aware either that housing associations are looking to reduce their social housing and are forcing renters to take up shared ownership or lose their home which is great for the housing association as they get paid rent and have no expense as the tenant picks up 100% of the running costs!
4. He's obviously not considered that by reducing PRS landlord reserves that whereas we have been doing our bit to increase the accomodation that this resource - that needs no government funding or incentives - will be lost

Although its depressing how naive their understanding is we still need to keep returning to the core issues and educating them.

James Fraser

9:44 AM, 6th November 2015, About 7 years ago

It's quite clear to me that all the 118'ers have to write to him to tell him how clueless he is. The more the merrier. Nothing will change if we don't repeatedly tell him the error of his ways.

Abdul Khan

9:55 AM, 6th November 2015, About 7 years ago

Reply to the comment left by "Carol Duckfield" at "06/11/2015 - 09:26":

Fully agree Carol. Basic facts and figures. I will draft something this weekend. If my understanding of this is correct, property turnover will artificially push people into higher tax brackets. Some will even lose personal allowance! Yet after the BTL mortgages are paid, the net profit would not cover the tax owed! I am yet to see a MP or HMRC simple example of this clause - before and after. If you debate with long text to a MP they waffle back and miss the points. We need direct sums. No wriggle room - hard facts.

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