In July 2015 Chancellor George Osborne announced the withdrawal of higher rate tax relief on mortgages of residential landlords. Those higher rate taxpayers with higher gearing in terms of finance have had their business models badly damaged or indeed destroyed as by 2020 they could be paying tax when actually suffering losses in real terms. There have been a number of tax projections to prove this. At the very least, the returns on their investments will be very low.
If individuals own multiple properties, one cannot say that life is simple, and that people just lie back and enjoy the return of income. The reality is that there is considerable investment in time, plus worry concerning risk as few tenants are perfect and some are positively headaches. At the same time it is inevitable that repairs to properties must be made as and when needed, redecoration is necessary, and damage has to be repaired between tenancies.
The latest attack on residential landlords announced by Mr Osborne in November 2015 is a 3% addition levy of Stamp Duty Land Tax (SDLT) on property not purchased for the owner’s own permanent occupation. This takes effect in April 2016. This is probably intended as a deterrent to would-be landlords and those wishing to expand their portfolio. It is dressed as giving first-time buyers a chance to own. However it ignores the premise that everyone needs a place to live, whether owners or renters.
At the bottom end of the market, for example in the Southend area (I have to declare an interest), the small flats in town would not be the initial target of first-time buyers. The reality is that landlords are providing what amounts to social housing, and for their return on investment have considerable risk in terms of the types of tenant.
In our own case the tenant of a flat downstairs from ours caused a fire with a Christmas candle. We lost our tenant of course as our flat was damaged, and incurred extra costs over the insurance recovery and legal requirements in paying for extra safeguards in case of another fire.
Then we took a tenant of the Southend Council homeless list, and within six weeks he trashed the flat and left, having turned on the shower tap and leaving the hose to pour water onto the floor. By the time we found out probably three days afterwards, the damage to our flat was considerable, it was uninhabitable for six months due to damp, and the refurbished downstairs flat we did not own was destroyed again.
We residential landlords take a risk, and frankly for the money there is no easy ride. Two years after the last event we are still carrying forward losses from that time; yet we feel that we are doing good by providing for a genuine need for our investment with what amounts to social housing. Yes of course we hope to make a capital profit one day. Why shouldn’t we, given the risks we have taken on?
Of course the country needs more houses, but George Osborne’s target of 400,000 by 2020 looks very inadequate to meet the requirement. Net migration to the UK in the year to June 2015 was 336,000 so in five years there might be another 1.5 million people. They are not all going to buy the houses that do not exist yet and will not in 2020. They are largely going to be renters. Where will they live? They need private residential landlords whether those with one or two properties, or fifteen.
If the Chancellor were honest about the new measures quite simply being tax-raising to fund the deficit rather dressing them as social engineering, we could understand to a degree why he had made these announcements. However, they will be damaging to the social fabric of society in ways that seem to have been overlooked, and amount to a very backward step in managing the housing crisis.