A Level Playing Field Between Homeowners and Landlords

by Mark Alexander

10:19 AM, 29th August 2015
About 3 years ago

A Level Playing Field Between Homeowners and Landlords

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A Level Playing Field Between Homeowners and Landlords

This is my third Open Letter to Mr George Freeman MP – Conservative, Mid Norfolk Level Playing Field Between Homeowners Landlords

A Level Playing Field Between Homeowners and Landlords

Dear Mr Freeman

A response was received this week to the petition to Government regarding the restrictions of finance cost relief to individual landlords. The key message seems to be that Government wishes to “level the field” for homeowners and landlords. I have given that a lot of thought, and on reflection I think I may have been wrong all along. I now agree the playing field should be levelled. I have listed how this might be achieved below:-

1) Homeowners do not receive tax relief of their mortgages at all. However, when they take a lodger into their home the first £7,500 of rent received is tax free. This should be extended to all rental properties, i.e. the first £7,500 from each unit upon which Council Tax is paid should receive the same £7,500 per annum tax free allowance.

2) When a homeowner sells their home the capital appreciation is not taxed. This should also be applied to each of their rental properties.

3) A homeowner is allowed £1million of IHT relief against the value of their home. This should be extended to equity in rental portfolios.

4) A homeowner is given the choice as to whether they should obtain a CP12 annual gas safety certificate. This should also be applied to tenants, not imposed upon landlords.

5) A homeowner is free to evict a lodger subject to providing “reasonable” notice, without having to refer to the Courts. This is very fair and prevents the Court systems from clogging. This should be extended to private landlords.

6) A homeowner is not required to protect a lodgers rent deposit in an approved government scheme. This should also be extended to private landlords.

7) Homeowners may choose to have as many people as they wish living in their home without the requirement to purchase a licence. If that home is considered to be overcrowded then Councils have the means to deal with that issue. The same rules should be applied to tenanted properties. Whilst the UK is subject to a Housing Crisis it is important to remember that every person needs a roof over their head. The finances of those people in need of accommodation dictates where they can afford to live. The solution to preventing over crowding and leaving people with no choice, other than to suffer in poor quality housing, is a simple one; provide them with affordable choices. The only reasons that people live in poor conditions is lack of choice and affordability. The cause of the problems associated with overcrowding, sub-standard and unsafe accommodation are quite obviously due to lack of choice. The solution to the problem is to increase supply of property, i.e. BUILD MORE!

8) Homeowners are not required to verify the legal rights to live in the UK of guests invited into their homes. Quite rightly, they leave this to the border agencies. The same should apply to landlords.

Every year that passes whereby Government allow new property development figures to fall behind the need for new housing should be considered a failure on the part of the Government. The blame for such failures should most certainly not be pointed back at society, or any section of it. Constant vilification of landlords is not addressing the true cause of the Housing problem, which is quite clearly the responsibility of Government . The only real power to control immigration and population growth rests with government, as does the development of additional housing.

I do not blame the current Government for the state of the Housing Market, only time will tell whether it is successful in solving the problem. The reason I voted for you, and the Conservative Party, is that I believe you provide the best hope of being able to solve the issues associated with the Housing Crisis and the economy. I have not judged you on the failures of all governments in the last three decades, I expect better of you.

Given that successive Governments have become so reliant on the Private Rented Sector I think the suggestions I have made above are fair. I sincerely hope you will agree and that you will also consider the following:-

1) It has become a lifestyle choice for several people not to own their own property, they prefer the flexibility associated with renting

2) Many people are reliant upon the PRS for work mobility reasons

3) A significant section of society are unable to obtain mortgage finance required to purchase their own home. This is due to being on low wages, in need of benefits so as not to be living below the poverty line or having a poor credit rating.

4) Government have stated they wish to reward hard working people by helping them to make provisions for their own future. Buy to let can be an effective strategy if it is not taxed and regulated into oblivion.

5) Government clearly acknowledge the UK has a ‘Housing Crisis’

My conclusion is that if Government are to be true to their word they must consider a root and branch overhaul of UK Housing and associated legislation and taxation policies.

Yours sincerely

 

Mark Alexander

Related Open Letters >>> http://www.property118.com/category/open-letter-to-mp/



Comments

Trendo

1:30 AM, 12th September 2015
About 3 years ago

Reply to the comment left by "Barry White" at "11/09/2015 - 22:32":

Is the lending criteria due to the fact that OO are a far greater risk possibly Barry, i wonder? When we had the last market correction OO were the ones in big trouble with neg eq, missed mort payments, repos, no alt source of income and no way to get themselves out of the effects of home ownership effectively when the prices moved down, clearly history shows us this. The PRS remained firm and resiliant and will do so once again. I have posed a few questions for you now which you appear to have missed - trawl back and look.

"unearned" equity Barry ? ...interesting use of a completely biased & unnecessary adjective, an adjective that speaks volumes i think ? Do you object to anyone who earns more than the minimun wage as a greedy selfish individual? Is it disgusting to provide a service and realise a profit? Should all B&bs, Hotels , hostels, charities, housing associations all be made to work under the same tax rules as they provide the exact same service ?

Market prices of most things fluctuate up & down over time as you are more than aware, to attempt to control the market is very foolish.

If the sub text of georges narrative is as you have it, then surely he would apply this to the WHOLE of the PRS / BTL not pick off a small sector which i think he considered would be "easy pickings". NOPE Georges narrative also includes the importance of incentivising homing people to the point where he has proposed £7600 tax free to do so, but in a rather odd way ....£7600 equates to £633 per month, i'm thinking that the average OO may have 1 spare bedroom, possibly 2, with which to acheive this from a lodger. That is going to encourage and push rents higher i feel, £633pcm for a room a month is very high (exc London of course!) Is he not guilty of exacerbating this problem by driving rents up to max out tax benefits?

Odd i say because instead of encouraging a system where family members can set up a new unit close to other family and friends he favours huge purpose built blocks - the new tenament ghettos of the 20's ... They may garner some support in large cities ..but certainly not in suberbs and rural areas.

Odd because he would prefer to encourage the lodger /lady scenario of the sixties, than to help create an independant household.
He is attemping to appease the far left, which will enevitably leave him and them with a lot of egg on their faces.

Your logic of "withdraw unearned equity" is no different to any other scenario whereby an individual or biz or any other entity secures borrowing against assets, wether it be an appreciating work of art, a company order book or valuation, whom i note are not subject to these ridiculous proposals.

Mark Alexander

9:36 AM, 12th September 2015
About 3 years ago

Reply to the comment left by "Barry White" at "11/09/2015 - 22:32":

That is also the basis upon which FTBs also manage to eventually trade up. They too release unearned equity for this and to help their children to raise deposits and often to fund their lifestyle too.

I don't see why you can compare landlords to homeowners without factoring everything else into the equation.

I don't see why landlords should be treated differently to any other business.

I don't see why individual landlords should be treated to incorporated landlords.
.

Jon Pipllman

16:30 PM, 12th September 2015
About 3 years ago

> trendo

you say that "s the lending criteria due to the fact that OO are a far greater risk possibly Barry, i wonder? When we had the last market correction OO were the ones in big trouble with neg eq, missed mort payments, repos, no alt source of income and no way to get themselves out of the effects of home ownership effectively when the prices moved down, clearly history shows us this. The PRS remained firm and resiliant and will do so once again."

Have you got a source for this?

The only stats I have seen, from this paper published in Spring 2014, suggest exactly the opposite: that a higher percentage of BTL mortgages was more than 3 months in arrears than OO mortgages and that, since 2010, the percentage of BTL mortgages ending in possession is higher than the percentage of OO mortgages

http://www.york.ac.uk/media/chp/Buy%20to%20Let%20Mortgage%20Arrears%20Report.pdf

(specifically Figures 2.1 and 2.2 in that report)

Trendo

18:12 PM, 12th September 2015
About 3 years ago

That is one long report !! from the report link here are a few quick quotes :

As they are commercial loans, lenders are less tolerant of buy-to-let mortgage arrears and do
not apply forbearance in the same manner. Therefore, the duration of arrears on loan accounts is
likely to be shorter than in the residential market. This means comparing buy-to-let and residential
mortgage market data is problematic. The data suggests that there are fewer arrears cases and
higher possessions in the buy-to-let market in comparison to the residential market. However, as
landlords’ accounts in arrears are referred to a receiver of rent
1
or passed through the litigation
process more quickly, this is not necessarily an indication that there is a reduced flow of buy-to-let
loans in arrears, just that the stock of buy-to-loans in arrears at any point in time is smaller.
The buy-to-let mortgage market is also not subject to consumer regulation. Unlike residential loans,
which have been subject to regulation since 2004, buy-to-let loans are not subject to oversight by
the financial services regulator the Financial Conduct Authority (formerly the Financial Services
Authority). Since 2007, the regulator has closely scrutinised the UK mortgage market to ensure
residential lending practices were compliant with the Mortgage Conduct of Business (MCOB) and
Treating Customers Fairly. Earlier light touch principle-based regulation was replaced with a more
stringent regime and a substantial review of the mortgage market undertaken, culminating in
regulatory changes introduced in April 2014. The Mortgage Market Review requires that, among
other things, lenders pay closer regard to the affordability of loans at the point of sale and stress
test affordability for potential interest rate rises (FSA, 2012). Various thematic reviews generated a
great deal of data and analysis relating to the risks in the sector, but these analyses largely omitted
the buy-to-let sector.
The Mortgage Market Review floated the idea of limiting loan-to-values (LTVs) and loan-to-incomes
(LTIs) in the residential market, measures that were subsequently dropped in favour of affordability
checks, although there are indications that counter-cyclical provision in this area may be made to
calm any over-heating markets in the future (FSA, 2010). The FSA analysis did reveal, however, that
only in the buy-to-let market (and ‘other’ loan category) were high LTIs and LTVs of over 90 per cent
associated with higher rates of default (Wilcox, 2013).

However, evidence prior to the
financial crisis showed that landlords were investing for the long term (CML, 2004). Scanlon and
Whitehead (2005) argued that landlords could withstand adverse impacts and that buy-to-let could
have a stabilising effect on the market, but that they would exit if interest rates rose and if the rental
income did not cover the mortgage.

Buy-to-let landlords do have greater personal resources than the wider population and Lord
et al
.
(2013) suggest that they are therefore financially resilient and can cope with substantial income
shocks. Several studies do demonstrate that landlords are indeed typically older, wealthier, well-
educated, higher rate taxpayers, with significant savings and disproportionately living in London
and the South East (Lord, 2013; FSA, 2012; Beatty
et al
., 2012). Weaknesses in the financial
circumstances of some landlords are, however, evident. BDRC (2013) found 13 per cent of small
landlords, who form the majority of the market, were making a loss at Q3-2013 from their landlord
activities, although this was down from the 16 per cent on Q2-2012. Looking closely at the Lord
et al
. (2013) analysis of the Wealth and Assets Survey indicates a minority of financially stressed
landlords, who are, nevertheless, responsible for a significant portion of private rented homes.
For example, 14 per cent of landlords felt the rental income was not sufficient to meet the cost of
everyday outgoings; 11 per cent would have to borrow money and 17 per cent would use a credit
card or overdraft to meet an unexpected major expenditure; and 16 per cent could not cope for
three months if their income dropped by a quarter. Not all landlords struggling financially will
accrue arrears but these data are indicators of financial stress. Although buy-to-let is intrinsically
tied up with personal financial investments, as a business proposition lenders expect it to ‘wash
its face’ or be self-financing. Although, Lord
et al
. highlighted other conclusions, their study does
indicate that a minority of landlords lack the resources to support adverse events within their buy-
to-let business activities.

26
Conclusions
The stock of buy-to-let mortgage arrears has fallen at a sharper rate than arrears in the residential
mortgage market, but the proportion of loans subject to possession in the buy-to-let market has been
in excess of the residential market. The extent to which personal rather than business or market factors
emerge as significant triggers for mortgage arrears in the residential market – unemployment, ill
health or relationship breakdown- are also factors in landlords’ accounts of their mortgage arrears is
unknown. Buy-to-let is, however, formulated by lenders and regulators as a self-supporting business
enterprise so in theory should not be affected by these events. Little is known about the determinants
of buy-to-let landlord arrears but we can speculate about some of the pressures landlords may face.

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