Here we go again – PRS Right to Buy!

by Readers Question

9:36 AM, 4th March 2019
About 2 weeks ago

Here we go again – PRS Right to Buy!

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Here we go again – PRS Right to Buy!

I came across this posting on another forum and wanted to share it with P118.

“Sian Berry, The Green Party’s London Mayor candidate plans to introduce a right to buy for tenants. Sian Berry has been influential to Sadiq Khan, The London Mayor who has adopted Green policies and also Jeremy Corbyn so there is a risk this could become Labour policy.
I would encourage you to challenge them publicly on social media about it. They are responsive to adverse publicly and this needs to be nipped in the bud. Search on twitter @sianberry @sajeraj and @tom_chance

A Right to Buy and to Co-op for private renters

Dear All, this is based on the work Tom Chance and I did with Sian to produce this report: We’ll be consulting a number of housing organisations and other relevant parties on this as well.

Motion title – a private renter Right to Buy and Right to form a Housing Cooperative

Synopsis: Private renters are often left without control over their housing situations. This motion seeks to establish a Right to Buy for private renters and Right to form a Housing Cooperative in order to improve the control, conditions and finances of private renters.
Motion text:
Private renters in a house of multiple occupancy (HMO) will have the right to form a cooperative in order to exercise a right to buy from a private landlord. They would receive a discount on the cost of the home that would be paid out of the landlord’s capital gain. Renters would also have the option of contracting with an existing housing co-operative to manage their home. Tenants that chose the co-op option would still be protected by the same tenancy provisions, including secure tenancies and rent controls.

Cooperatives will be provided 5-year loans to help co-ops buy properties. After those 5 years the co-op would have gained sufficient equity in the property, and have a financial track record, to be able to secure better deals from ethical and other lenders. Loan and grant funding will be provided for property improvements and extensions. A Green government would also work with existing housing co-operatives in London to leverage their asset base and their cash holdings to support new co-operatives.

Private renters will have a Right to Buy their home from their private landlord. They would receive a discount on the cost of the home that would be paid out of the landlord’s capital gain. The price the renters buy at should not be less than the original price the landlord paid plus expenditure on subsequent improvements and inflation (CPI), so that no landlord can make a loss. Landlords with between one and three properties should also be entitled to financial advice including an assessment of their options to achieve income or capital growth in more socially productive investments. The Right to Buy would be limited to homes that are at least 25 years old, to avoid deterring investment in new build properties. Homes bought through this mechanism will have a covenant applied restricting the resale price to the original price paid plus inflation (CPI) to preserve future affordability.”

My initial thoughts are (after “OMG, FFS!”)

– “left without control over their housing situations” – except for minimum 2 month’s notice, no retaliatory evictions, able to reclaim rent & deposit and sue LL if they cock up, free legal advice at court, HHRS, compliance with licensing regs etc etc

– HMOs tend to have more transient tenants by nature – why would they buy? What happens if one “owner” wishes to move on? Will other tenants be obliged to buy them out? If so, who’s going to fund that? What happens in a falling market?

– What would happen in a HMO with say 6 tenants, 5 of whom want to buy but the 6th doesn’t? Will they evict the 6th tenant or buy as a group of 5, thus making the 6th tenant a lodger? Will lodger’s have a right to buy?

– Why should LLs take the risks, finance the properties/maintenance/refurbs, save for the initial investment with the aim of making a living, only to hand over the profit to people who have taken no risks or made the sacrifices to save for the investment?

– How will they balance the loss of revenue to HMRC for reduced CGT and Income Tax on rental profits?

– Para 2 infers that they will bring in secure tenancies and rent controls which will mean more LLs leaving the market and higher rents.

– Who will fund these 5 year loans? Taxpayers? How will the Treasury do this out of reduced receipts? Who’s paying the legal & SDLT or will that be covered by taxpayers too?

– Their assumption that the property would gain sufficient equity in 5 years shows their total lack of understanding of property. After 10 years, some areas in the UK have not got back to pre-crash levels. What happens if the tenants default on their mortgage – how will the lenders feel about pursuing 4,5,6+ mortgagees? Who do they expect will pay for loan & grant funding for property improvements and extensions? Will every home owner in the country be eligible for these loans, or only those in a HMO Co-Op?

– The 5 yr initial mortgage for this RTB would have horrendously high repayments – especially in London/SE – where many HMO Tenants may well be claiming LHA – hence any repayments would need to derive from net earned income – whilst also satisfying the strict MMR lending criteria.

– They state we would get PP + improvements + inflation so we don’t make a loss – but why would anyone become a LL to just break even?

– Fab! We can get financial advice on how to achieve income or capital growth in more socially productive investments. But they don’t say this will be free financial advice (nor what they consider profit-making socially productive investments).

– The majority of homes in this country are over 25 years old. It will deter investment in new builds as no LL will invest. And what about all the hundreds of Rent to Buy apartments that are springing up all over the country?

– Does the R2B means that tenants can force the sale of a property without the LLs consent? Can the LL evict tenants to prevent the forced sale? Or evict them so he can sell on the open market (perhaps giving tenants first refusal)?

– Compulsory R2B would mean the mortgage market drying up as lenders won’t want to take the risk of a LL having their property effectively confiscated. This would cause a market crash and another recession.

– As someone else has pointed out: There will be a form of securitisation from collectives’ loans. So as Lehman Brothers proved so successfully lending millions of loans to uncreditworthy people does not give you a credit worthy product. What it does do is allow you to slice and dice the risk better. But who takes the last tranche? Would tax payers?

– This is an asset-grab for political gain and nationalisation by the back door.

Heather



Comments

terry sullivan

12:05 PM, 4th March 2019
About 2 weeks ago

berry is barking--all greens are--dellers refers to them as watermelons--green on outside, red on inside

Whiteskifreak Surrey

12:09 PM, 4th March 2019
About 2 weeks ago

Another idiocy aimed at pleasing an uneducated crowd. What about students' houses? They are even unlikely to think about buying.

Laura Delow

12:15 PM, 4th March 2019
About 2 weeks ago

Am in a state of shock reading this. It's akin to a compulsory purchase order guaranteeing the landlord will lose a shed load of money. If I'm understanding this correctly then assuming no improvements/capital expenditure since owned to keep the maths simple, if I bought a property for £55,000 the beginning of 1999 then at a CPI average rate of 2.063% p.a. since 1999 to the end of 2018 = £81,070 vs £280,000 today's value on the open market. This guarantees a loss nigh on £200,000! Am I misunderstanding matters? I hope so.

Mark Alexander

12:35 PM, 4th March 2019
About 2 weeks ago

The stupidity of this suggestion beggars belief.

All it would serve to do is make accountants and solicitors wealthier because landlords would effectively be incentivised to transfer between ownership structures in order to continually increase their base costs for CGT purposes, e.g. private landlords would sell their business to their own LLP or Limited Company to wash out their capital gains - see https://www.property118.com/washing-cgt-incorporation-actually-mean/

Rob Crawford

12:51 PM, 4th March 2019
About 2 weeks ago

Good title - OMG. The most worrying bit for me: "The price the renters buy at should not be less than the original price the landlord paid plus expenditure on subsequent improvements and inflation (CPI)". I'll have to do sum maths, but suspect the result will be similar or worse to the example given by Laura! It may be a Green Party idea, but we have to take it seriously and 'nip it in the bud' asap. Remember, it was the Green Party who came up with the idea of Section 24 that was then adopted as by the Conservatives! The Green Party is dangerous (don't they have better things to do like saving trees?).

Martin Thomas

12:52 PM, 4th March 2019
About 2 weeks ago

I think watermelon sums Greens up perfectly!
This proposed policy smacks of Stalinist Russia and would be right up Corbyn's street!
Typical left wing nutjob.
It needs to be binned pronto.

Whiteskifreak Surrey

12:57 PM, 4th March 2019
About 2 weeks ago

Reply to the comment left by Martin Thomas at 04/03/2019 - 12:52
I would think that would be something the new National Landlords Alliance should look into immediately. Much more important that Shelter bashing, IMHO.

Mark Alexander

13:11 PM, 4th March 2019
About 2 weeks ago

Reply to the comment left by Whiteskifreak Surrey at 04/03/2019 - 12:57
I agree

Freda Blogs

13:24 PM, 4th March 2019
About 2 weeks ago

Unbelievable.

The perfect suggestion to send many more landlords towards the exit. Just what's needed in a time of housing crisis.

Rob Crawford

15:58 PM, 4th March 2019
About 2 weeks ago

"Rent to Buy" more like "Try before you Buy" (but don't tell the landlord!!).

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