Profile incomplete
9:05 AM, 1st December 2015, About 8 years ago 53
Text Size
The Chancellor of the Exchequer’s 2015 Autumn statement put me in mind of a scene from the epic television series Game of Thrones.
In the scene, a musician, captured for making mock of the fatal goring by a wild boar of the former king of Westeros Robert Baratheon, is being forced to re-perform his offending material before the new king, Joffrey Baratheon, and his court.
Upon completion of the final line of the song – “the lion ripped his b*lls off aaaaand… the boar did all the rest” – the boy-king Joffrey leads an applause of the performance and then openly toys with the musician as to which body-part to have amputated from him as punishment.
When the musician begs “Every man needs hands your Grace”, Joffrey merely smiles and chirps back “Good… tongue it is.”
My memory of this scene was triggered at the point of the Autumn Statement when George Osborne recalled being told of the unfairness of restricting mortgage-interest tax-relief for individual landlords. It was from this point in the speech, with barely-concealed mocking reference to such unfairness, that the Chancellor then proceeded to announce a 3% Stamp Duty surcharge on landlord house purchases: gutting and making yet further example of his chosen scapegoat before the Nation.
But at least we could presume in Game of Thrones that the poor singer got to keep his hands. Furthermore, the Osbornesque small print to this policy is that commercial property investors, with more than 15 properties, are expected to be exempt from the new charges. So rather than correcting the disparity in treatment between individual and corporate landlords, the Stamp Duty surcharge is set to exacerbate it. The twist to this “fair” announcement is therefore as dishonest as it is vindictive.
Based on the letters I have sent, and the letters sent by other parties that I have read, explaining the very unfairness of restricting mortgage-interest tax relief to which Mr Osborne was no doubt referring, I feel that I can be sure (as can you) that such correspondence would also have detailed the inevitable drastic social consequences proceeding from the measure. These being of course, higher rents, evictions and untenable pressure upon the waiting lists of councils and housing charities.
That George Osborne’s response to such dire concerns, was to be inspired to dry mockery and announce yet another tax-raid upon landlords livelihoods, is just as great a reflection upon his overall character as a person, as it is towards his specific attitude towards buy-to-let landlords. Or to put it another way, it is just as much an indication of his conduct as an eventual Prime Minister than a display of his current conduct as Chancellor.
So putting aside the obvious disastrous effects of Clause 24, what will be the favourable outcomes for George Osborne and the Government of its implementation? Will it solve the disparity between the demand and supply for homes in the United Kingdom? No it will not, because this disparity is the cause of population (demand) increasing at a faster rate than the construction of new homes (supply).
Shall tenants benefit from a so-called “leveling of the playing field” between owner-occupiers and landlords, by becoming owner-occupiers themselves en-masse? No they will not, because the overwhelming majority of people who rent do so because they NEED to: they need rental accommodation because they are either, too early into their current job to be sure of their position far enough into the future, working temporarily in the UK or a particular part of the UK, or prevented by unemployment, restricted working hours, single-parenthood, illness, disability or a poor credit record from being able to buy a house. It is true that such people will be shifted out of the private rental sector by Clause 24, but not into their own houses. They will be shifted into the spare rooms of their parents, onto the sofas of their friends, and on to the waiting lists of councils and housing charities. Clause 24 cannot therefore have been designed with their welfare in mind.
Shall the measure stimulate increased tax revenue? Yes… at least for as long the rump of the buy-to-let landlords it is targeting can remain afloat. But if the motivation of Clause 24 was to generate much needed finance for government spending, why isolate it to individual buy-to-let landlords? Why not levy such further taxation upon rental incomes across the board, raiding the deeper pockets of corporate and cash buyers? After all, aren’t these parties the most able (or should I say “the least unable”) to pay? Should not those with the biggest shoulders assume the heaviest burden? In relation to personal income tax, this mantra has been parroted by Tory ministers for as long as we can remember. So why anomalously discard it when taxing rental income? Why indeed…
Shall wealthy corporate landlords/companies, with significant lobbying power and the potential to donate large sums of money to the Conservative Party, be gifted an unfair advantage and empowered to replace smaller individual landlords upon their being taxed to absolute financial ruin? YES THEY SHALL, because Clause 24 grossly and specifically inflates the tax-liability of individual landlords with buy-to-let mortgages: namely the working and middle class landlords who do not fall into the aforementioned category and who possess negligible inducements with which to buy political influence.
The social consequences of Clause 24 have been made clear to George Osborne by many landlords and by a growing minority of media commentators choosing not to bandwagon. Furthermore, owing to Mr Osborne being an individual of above-average intelligence and no less than The Chancellor of the Exchequer of Great Britain and Northern Ireland, the notion that he would not already have been aware of Clause 24’s social consequences prior to its inception is highly unlikely. Given these rather obvious circumstances one can only conclude that in the Westminster playground he inhabits, the fulfillment of vested interests are a higher priority to George Osborne than cries of upheaval and pain from the country at large: a priority high enough to warrant stabbing a substantial section of his party’s voters in the back for its preservation.
Through the Finance Bill 2015-16 we have learned of George Osborne’s willingness to heartlessly exploit an extremely ill-informed media bandwagon and to persecute landlords for his own political gain. But we have also learned that honesty, integrity, morality and public service – qualities essential to a political leader – are qualities of which the Chancellor is not in possession. In showing himself to be desensitised, backstabbing, mocking towards the suffering of people, and willing to manipulate the fiscal levers of government in preference of vested corporate interests, George Osborne has demonstrated why he must never be allowed to become Prime Minister of this country.
With that in mind, I believe it is time that we prepare to say “no” to George: I mean really say “no” to George. This means that as well as signing the online petition to reverse Clause 24 https://petition.parliament.uk/petitions/104880 every landlord should register as supporters of the Conservative Party to become eligible to vote in its eventual leadership election https://www.conservatives.com/join If we are persistent in promoting this idea to as many landlords as possible via as many channels as we can, between now and the close of David Cameron’s tenure as party leader we could have a great many people able to influence the outcome of the final ballot. Were Mr Osborne to be aware of this activity in the run-up to his leadership campaign, he may just realise the extent of this grave policy error and the very real, political cost to himself of enacting it. If however, we remain dissatisfied with Mr Osborne’s performance and decision-making, we can all vote for his rival in the contest, thereby discovering if he is even half as amusing towards losing as he was in the Autumn Statement to our warnings concerning Clause 24.
Previous Article
Shared freehold with permanently empty flat and unresponsive owner?
Richard Mann
11:54 AM, 1st December 2015, About 8 years ago
Very well written piece, thank you for posting.
While I have not had the pleasure of enjoying the hit TV show Game of Thrones. I can fully appreciate the position of the King of Westeros and feel in a somewhat similar position myself.
Lady landlords please apply the relevant / equivalent example for yourselves.
Barbara Gwyer
13:31 PM, 1st December 2015, About 8 years ago
But housing crisis what housing crisis in London? The Government has asked each London borough to provide 1000 new social housing properties to meet the growing demand. New not additional, though and here's the rub. Lambeth is complying by demolishing six estates so around 850-900 properties will go so they can build the 1000, and presumably pushing 850-900 families out to fend as best they can whilst the work goes ahead. I've no doubt other boroughs are doing similar. With most new build developments seriously overpriced because developers know they will be snapped up by foreign investors whatever they charge; these blocks aren't going to see many first time buyers. So if private landlords are forced out of the arena, what are people who can't afford to buy going to do?
money manager
15:46 PM, 1st December 2015, About 8 years ago
I think these moves are not as unconsidered as we might wish, it looks like something of a rerun playbook.
In around 1983 there were 250,000 life assurance salesmen/financial advisers/brokers. Self regulation dawned with Lautro/IMRO/Fimbra followed by statutory regulation PIA/FSA/FCA, ever high levels of qualification, compliance costs, government intervention (Stakeholder pensions etc) and prohibition of commissions and regular doses of investigatory scandals (often misinformed and definitely myopic) and consequent media frenzy (definitely misinformed and willingly myopic). In 1990 I remarked that the regulator would not be happy until no one actually bought anything but they could be assured that they did so compliantly. Today there are approximately 50000 fee charging financial advisers but almost invisible to the general public and even the banks have withdrawn face to face advice for all but the better heeled.
The industry was forced to evolve from a cottage industry of largely single self employed to a corporate one. HL was formed in a spare bedroom and has a cap value probably more than some countries, you couldn't replicate that today.
So the big boys are taxed CT at 20% on retained profits with all the recent benefits while the smaller fish are allowed to fry, bail out or up their game. We have fire detector, checks, legionella assesments, landlord licensing, HMO criteria, right to rent and potential changes to landlord obligations and tenant rights and possibly, however misguidedy, rent controls all of which reduces margin.
I am not convinced that logic alone will address the iniquitous, and one shoe fits all, moves that have been adopted. Other than the immediate need to extend the tax take, and BTL is seen as low hanging fruit, I am not sure that recent measures are other than longterm policy driven to reduce the market diversity and achieve economies of scale. There ARE real issues such as rural second homes that cause a problem and that could have been adressed by more focussed interventions, they weren't.
19:36 PM, 1st December 2015, About 8 years ago
If all of those people will be shifted into parents spare rooms, onto friends couches or council waiting lists then how will landlords sustain increased rents? Won't it just result in more void months and thus a reappraisal of rent according to market forces? Can't pretend to understand how councils set housing benefit levels so not sure how that would influence things.
Gareth Wilson
20:04 PM, 1st December 2015, About 8 years ago
Reply to the comment left by "Gordon Comstock" at "01/12/2015 - 19:36":
Rents 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.
In this scenario the poorest renters will be those forced out of the market. Landlords who previously had to hold their rents down to accommodate a target base of lower-income tenants will be the ones most likely to close down their operation and sell, as their increased tax bill makes it financially nonviable. Meanwhile those remaining because they're able to attract higher paid professionals will focus upon them to pay their mortgage payments + enlarged tax liability. The poorer renters who no longer figure in the plans of this reduced supplier base will be the people pushed out of the market into spare rooms, council waiting lists etc.
20:48 PM, 1st December 2015, About 8 years ago
Reply to the comment left by "Gareth Wilson" at "01/12/2015 - 20:04":
But if the supplier base is reduced because landlords are selling up then doesn't it figure that the renter base will also reduce (as in its a fair assumption that renters are buying the property)? Also, according to the OP a substantial amount will also be priced out and so further reduce the renter base thus forcing reassessment of rents accordingly (bearing in mind that landlords most effected by the taxes will now be in competition with corporates and other landlords who aren't leveraged at all)? I appreciate that you'll have to put your rent up, but is it a given that the people you're competing against will have to as well?
Darlington Landlord
22:20 PM, 1st December 2015, About 8 years ago
Reply to the comment left by "Gordon Comstock" at "01/12/2015 - 20:48":
I am a second generation landlord and I firmly believe we need more social and general house building to solve the housing crisis. Landlords do provide homes to those that cannot buy and in many cases are willing to share or rent small spaces to suit their lifestyle.
We are not the cause of the homes shortage in the uk!
Incorperated landlords not directly affected by the tax grab will still look to raise rents along with the market especially to compensate for other anti landlord tax changes and the perception that Osbourne is targetting landlords unfairly
The corperates have not invested in the uk so far as they look for higher yields and don't want to compete with our private rented sector. If they do invest they will charge high rents and have poorer service.They are waiting untill they can make a profit on their terms. Google american housing corperations for feedback.
You only have to look at student accomodation which they are building masive blocks of in cities like liverpool charging vastly overinflated rents than traditional shared student houses.
There are many statistics going back to the 80's showing that if the supply of rental property is reduced rents will rise.
Most renters do not want or are not able to buy their current home. No renter will want to buy a room in a shared house, which many are living in. Only 1 in 26 of my tenants (in self contained flats and houses) would be interested in and able to buy. If Landlords exit the market many people will be reduced to sofa surfing /homelessness
Gareth Wilson
22:20 PM, 1st December 2015, About 8 years ago
Reply to the comment left by "Gordon Comstock" at "01/12/2015 - 20:48":
No because we are talking about a market demand comprised almost entirely of people that need rental accommodation because they are either, too early into their current job to be sure of their position far enough into the future, working temporarily in the UK or a particular part of the UK, or prevented by unemployment, restricted working hours, single-parenthood, illness, disability or a poor credit record from being able to buy a house. When the supplier base is reduced these people will still be left looking for rental accommodation and remain unable to buy. But they'll have less choice and the average rents will be higher.
You're saying that rents might return back to lower levels due to the fall in demand of renters being pushed out, but the extent to which this would occur is going to be greatly restricted by the previous exodus of rental supply and the still present clause 24 cost barrier that caused poorer renters to be pushed out in the first place.
The reason why the market rent will go up as opposed to among isolated pockets of unlucky landlords, is because in most parts of the country cash-bought and corporately owned properties not impacted by Clause 24 account for a minority of the supply. As these parties see market rents creeping up, they may price a little shy of that to lead the market, but overall they will increase rents in line with the prevailing market trend to maximise their profits.
The other thing I would factor in as well is the potential bond individual landlords have with their tenants. Contrary to the most extreme cases reported in the media we have friendly, face-to-face relationships with our tenants: we want them to stay for as long as possible and to keep our rents the same for as long as possible as part of achieving this objective. Unlike the corporates, we don't just see our tenants as interchangeable numbers on a spreadsheet. These are people we know and like, and Clause 24 is going to make things just as bad for them as ourselves.
The corporates are not merely trying to prepare for their retirement and keep their properties ticking over like individual landlords. Their objective is to maximise profits. Regardless of lower costs, if they see the potential for higher rents in the market, they will pursue them ruthlessly: taking in and spitting out as many tenants as necessary to get it.
Gareth Wilson
23:22 PM, 1st December 2015, About 8 years ago
Reply to the comment left by "Richard Mann" at "01/12/2015 - 11:54":
Hi Richard,
Thank you for your kind regards.
I can't think of any specifically female comparisons. But the best Game of Thrones alternative I can think of to describe our own predicament right now, would be Property118 as the Night's Watch, a certain other online community as the Wildlings, and the Treasury the army of the dead coming to get us all while we're too busy fighting each other.
Richard Mann
23:57 PM, 1st December 2015, About 8 years ago
Hi Gareth
We are all in such a dilemma at the moment.
Businesses that have taken years to develop have been razed and looted overnight. Thousands of property letting business owners have had all of their hopes and dreams and hard work trashed.
Quite honestly I am still in disbelief and shock like a traumatised accident victim. Almost speechless and struck into a motionless zombie state, perhaps not too different to some of other TV shows you mentioned!
Zombie Landlords
Easy targets usually overcome with ease.
Until I hear of a realistic solution my whole plan for the future has been decimated.
I am sorry for the pain it will cause my tenants really nice decent people getting on with their lives. I am sorry for the loss of business that my many suppliers will suffer.
Painters decorators carpet cleaners electricians plumbers gardeners roofers shops local and distant carpet fitters local takeaways and supermarkets and many other professional services that I use.
All of these business people will be affected.
How does this possibly help our economy to improve and where will all these tenants ultimately go?
For that matter where will all the landlords go ?
Entrepreneurs wasted talented courageous individuals ready to give it a go. Banished from the kingdom.