Written evidence submitted to The Finance Bill Committee by Kathy Miller and her tenants (Mr and Mrs Levy, Mr and Mrs Bennett, Mrs S James and Mr C Wigmore) (FB 05) IGNORED!
Submission on the ‘restricting deductions for finance costs related to residential property’ decision announced in the Summer Budget: ‘What about the tenants?’
1.1. My background is that I have been renting out properties since 1998 and over the years I have built up my portfolio of 40 properties, ranging from 1 bed flats to 5 bed detached houses, and as such I cater for a wide range of tenants’ needs. I work with the Housing Department at the local council who are always especially desperate for 1 and 2 bedroom properties. My tenants include those on full benefit, the low paid in receipt of top-ups and full time workers. Many have been with me for 5 years; my longest tenant has been with me for 14 years.
1.2. My view is that my portfolio is a business and I started it to become self-sufficient and to provide an income in later life. My yields are low due to house prices in the area where I operate. I maintain my properties to a very good standard and use local trades people on a regular basis. I am one of the larger landlords in my town. Many of my tenants would not be in a position to buy due to low wages; some do not wish to buy and they like the fact that they can ‘phone me when the boiler breaks down, for instance. I thought that the Government was encouraging measures that meant renting a property was as secure as buying your own home. It seems I was wrong.
2.1. This submission focuses on the impact of the above policy for tenants in the private rented sector. Tenants have been rendered invisible in the documentation related to this proposal and the aim here is to present my point of view as a portfolio landlord and to give tenants a voice; our fates are somewhat intertwined.
2.2. There has been much emphasis on owner-occupiers and the Government’s aim to increase the number of people who own their own homes. I believe this emphasis is unbalanced and serves to discriminate against the interests of many tenants who do not have the aim of owning their own home and maybe never will and for whom an efficient, effective and secure private rental sector is essential. The decision of the Government to heavily penalise landlords with an unfair tax that would probably be unique in the advanced world and which will lead to rent rising and evictions as their businesses are rendered unsustainable is going to have a damaging effect on thousands if not millions of tenants. Many tenants are now worried, as they have seen the evidence that landlords intend to increase rents and or sell up to cope with this attack on their businesses. Estimates of likely rent rises in the short-term range from 12 to 15%. Landlords do not want to increase rents, but the Government is forcing their hand. This will become more acute as interest rates rise, because the Government is re-defining interest payments as landlords’ profit (a very bizarre and unfair concept). This is a ticking time bomb for portfolio landlords like myself, especially.
3. Some perspectives of tenants who rent my properties:
3.1. Mrs Bennett
‘My husband and I have been tenants of Mrs Miller for 5 years. This is my 2nd marriage and my new husband works full-time on the minimum wage. I worked full-time until Feb 2015 when I had my baby. My husband has two children from a previous relationship whom he supports in addition to our family. We will never be able to buy in the area we live with our low wages and the high house prices. I have been on the council waiting list since June/July last year. Our home is overcrowded and we need a 4/5 bed house, but my landlord has nothing available and rarely does due to the high demand for rental properties. I am stuck.
If landlords are forced into selling then the homeless situation will be off the Richter scale. Where are we to go? The remaining landlords, if there are any, will increase rents which we would not be able to pay.
3.2. Mr and Mrs Levy
We have been tenants of Mrs Miller for 8years. My husband works full-time but the salaries are low in my area; we will never be able to afford to buy and are very happy renting. There are a limited number of houses at the moment to rent and the council stock of 4-bed-plus houses are in great demand due to cuts in other areas. This will only increase when the income for people on sole benefits reduces from 26000 to 20000 in 2017. I would say there is a need for more private rented housing not less. We all know that no new housing will be created by the decision and/or be available at the point when I am given notice by my landlord, and if owner-occupiers buy up the houses which are put on the market in my area, then that will mean less housing availability for tenants like me. Also, if limited companies or large corporations buy the housing stock which becomes available, I don’t know if they would consider me a suitable tenant, what they would charge, whether they would have hefty fees and so on. My current landlord has allowed me to move to other houses she owns from time to time and there has been no cost. I feel that the Government is showing favouritism to people who can afford to buy over and above those of us who will never be in that position. It is so unfair.
3.3. Mrs James
I am so alarmed by this government’s proposals. I cannot see how this will help the rental market and tenants like me, I never will be in a position to buy. I absolutely love my house and where I live, I am a long term renter ( 9 years ) and single mother of two. If my landlord is forced to sell my family’s lives will be uprooted. How many good landlords will be forced to sell up or go bankrupt? My landlord has many properties within the town I live in; are the council ready for hundreds of people expecting to be housed? This will push rents up and reduce much needed supply. The reason I am renting privately is because the council have very limited availability. What happens if I can’t afford the rent increases? I also wonder what will happen to other groups and individuals who are not in a position whereby they want to buy a house any time soon. There will be many thousands of students, young professionals and migrant workers all over the country who rely on renting from private landlords.
3.4. The view of a local builder, Mr C Wigmore
I do not rent from Miss Miller but I am in rented private accommodation. I am 57 years old and I price for jobs on many of Miss Miller’s properties. Not only am I worried about keeping a roof over my head which is one of the very basic needs along with food, but I still have at least 8 years left of my working life. If there is a massive exit from the rental market it will affect local trades like mine. The proposal although I am sure was well intended will do nothing for the economy. All I see is job losses, homelessness, increased rents if you’re lucky to find somewhere to rent, and in extreme cases depression, family breakups and suicides.
4. Some facts and figures regarding renters who are not in a position to buy include:
4.1. There are approximately 3 million full and part-time students in the UK. Despite the growth in the purpose built student housing market, the traditional private rented sector retains the largest share of the student accommodation market at 29.4%, so 882 ,00 students in total . Were these (often larger) homes where they currently rent, to be converted into owner-occupier homes, where would the students live?
4.2. With regard to migrant workers: The number of EU-born workers in the UK is more than 2 million (according to ONS figures). In total, 4.9 million foreigners are employed in the UK (almost one in 6 of the 31 million strong workforce). A large number of these rely on private landlords for their accommodation. These people contribute to the UK economy and need somewhere to live.
4.3. Because successive governments have sold off many of the council houses and the current Government intends to extend the Right to Buy to those living in Housing Associations, what will happen to another group which has been heavily dependent on renting from private landlords, namely the unemployed and the low-paid – including single people, couples and families, the elderly, the disabled and so on? If landlords sell up, where will they live?
4.4. There will also be others who choose to rent for various reasons, not least job mobility.
4.5. Others may be aspiring first time buyers, so may be able to take advantage of the landlords forced to sell. So it is possible that a minority of people will benefit from this mass disruption of the private rented sector. Again, I point out, this is unfair.
5. I would like to suggest alternative proposals:
5.1. Build more houses, including encouraging private landlords to build more homes through tax incentives (rather than punitive taxes which make their businesses unsustainable). There are many small infill sites which could be used for an additional house if the NIMBYS didn’t object to everything near them.
5.2. The Government could allow roll-over relief for landlords, which would free up houses for people to buy. It is landlords who often buy up the houses which are in need of renovation and sometimes are not initially mortgageable, which first time buyers would be unable to purchase.
5.3. Make better use of existing housing. This may include tax incentives for older people to downsize and also introducing tax incentives for landlords to create more high-quality HMOs, which make good use of limited housing and are also good for the environment (use of lighting, gas etc for 6 renters is more environmentally-friendly than lighting and heating a house for one or two owner-occupiers).
5.4. It is essential to understand not just the issues of tenant affordability, but also to appreciate that landlords have to make a return too. If landlords find they are not earning anything from their properties (and according to a recent Shelter and Strategic Society Centre report, 21 per cent make no profit; source: Understanding Landlords: A study of private landlords in the UK using the Wealth and Assets Survey) they are likely to exit the market. This must be discouraged at all costs, as the number of households waiting for a social/council home is over 1.6 million (source: Shelter Housing Databank), making the only form of tenure left the PRS; it is essential that this sector remains affordable and viable.
5.5. It is important to remember that shifting people from social housing to the PRS was the result of the Right to Buy Legislation introduced in the 1980s and it is this which has caused a very significant reduction in the supply of social housing throughout the UK. Bizarrely, although successive Westminster governments have supported Right to Buy, lately this has led to reports and rhetoric accusing ‘greedy’ landlords of profiteering from the tax payer by taking billions via housing benefits. What this accusation ignores is that this was driven by government policy and in return for this money, landlords are saving the taxpayer the need and cost of building social homes, and incurring the costs of funding and running these properties. Unlike social landlords, private landlords do not receive subsidies for providing this service. Indeed, private landlords are heavily taxed both in terms of income and capital gain. This reduces the burden on the tax payer. With a benefits cap being introduced to reduce the housing benefit further we now have a dilemma in the PRS, as the sheer cost of providing accommodation versus the rent tenants on benefits receive, in some areas, means affordability issues for both the tenant and the landlord.
The Scottish Government has recognised the supply problems that have been caused by Right to Buy and has introduced legislation which will bring the Right to Buy to an end from 1 August 2016.
6. The landlord’s perspective: what this means for me and how it will change my business completely, put in jeopardy everything I have worked for (I will no longer be able to pass my business on to my daughter, as it will be made unviable):
As a result of this legislation, my tax liability will increase from 2015 to 2021 by £38,233 which is an increase of 250% due to the finance interest restriction. If the base rate increases to 3.5% then I will make a loss of £88,591, but will still face a tax bill of £23,490 leaving me with a total loss of £112,081. These are actual figures supplied by my Accountant. The decision will be catastrophic for me. It is absurd that any business should pay tax when they make a loss. (I asked how many of my Accountant’s clients are affected by this and he said that many are – even the ones with just one property.)
6.1. My options now, as I see them, are:
• Start evicting tenants now and sell up all my houses.
• Look at the possibility of incorporation (but because of CGT and SDLT it is probably not worth it).
• Emigrate to avoid bankruptcy (as CGT will then not be payable).
This proposal has created great uncertainty for me and for my tenants. I urge the Government to reconsider and realise the terrible human cost of this outrageously unfair tax change.