Summer Budget 2015 – Landlords Reactions

Reply to the comment left by "Mark Alexander" at "08/08/2015 - 11:06":

Reply from Tim Pike and my reply to him ....

REPLY FROM TIM

Hello Mark,

Good to hear from you! Hope you’re well, too. In response to your question, good thank you.

I hear what you say and will take a close look at the issue, it’s not one I had considered prior to your email. I will escalate it as you request, however please note that (as I’m sure you are aware already) Treasury Budgets are not things the Bank has any say in. So you are indeed best to deal direct with the Treasury, even if as a private citizen you are unlikely to influence government policy.

Best wishes

Tim

MY REPLY TO TIM'S REPLY

Hi Tim

In answer to your question, I am facing financial oblivion.

The figures in this article are very close to my own >>> http://www.property118.com/how-the-budget-will-affect-private-landlords-example/76673/

To make things worse, earlier this year I refinanced onto 10 year fixed rates to hedge against interest rate rises. The early redemption charges are 5%.

Historically, I invested all of my spare money from The Money Centre into my property portfolio. I also leveraged highly to expand my rental property business and increased my gearing even further in 2008 to pay off my ex-wife when we divorced. A year later The Money Centre collapsed and I now live off my retirement plan, i.e. my property investment portfolio.

I cannot sell my property portfolio because the net sale proceeds will be insufficient to repay the mortgages and also cover the CGT, sale costs and ERC’s on the mortgages. The income tax payable under the chancellors proposals will also render me insolvent eventually. Whilst I have made provisions for interest rate rises, my bankruptcy is inevitable if the Chancellors proposals proceed as planned. I am trapped. My properties will be repossessed and my tenants will be forced to relocate in a market which will see the availability of rental property reducing. A significant element of the PRS (landlords and tenants) face the same inevitability. The social consequences are unthinkable.

If I had invested through a limited company I would not be affected.

All the best ....

Reply to the comment left by "Appalled Landlord" at "08/08/2015 - 11:09":

Thanks for the 'heads up', these have now been added >>> http://www.property118.com/category/budget-2015-campaign/
.

Hi G Cox

thanks for that, I was looking at Isle of Man. If they can apply this from 2015 for CGT then why cant they for Interest relief. Although I dont think it is right to bring it in full stop. If it does come in , it wont be long before they take the remaining 20%.

I cant understand why we have not got 3 million signed up, they really need to wake up and smell the coffee. Instead of rolling over and playing dead!

Perhaps we should all march to No10 with banners like the charity people did!

Reply to the comment left by "KATHY MILLER" at "08/08/2015 - 13:36":

I cant understand why we have not got 3 million signed up

Everyone I speak to is unaware of it, including landlords.
When I explain they glaze over.
They then say they hardly make anything on rents anyway so it won't affect them.
It is only when I spell it out that they get angry and sign up.
And these are intelligent professional people in higher rate jobs.
The penny will drop eventually with landlords and also with tenants but I'm worried it might be too late for the petition.

Nevertheless, a great achievement to get to (nearly) 10,000 already.

Reply to the comment left by "G Cox" at "07/08/2015 - 19:46":

Thank you for your very illustrated example, I sometimes read these things and think that I must have interpreted the information wrongly as they are just so unbelievable. Overseas investors who don't have to pay capital gains tax and a max rate of income tax at 20% even though they are at 40% levels. I can see why the very rich have been buying 10 and 20 £Million pound houses in London 10% capital gain in say 18 months and walk away with 1 or 2 million pounds tax free and it's not even your main residence. I take it that the max 20% tax on rental income is still going to continue for them. Who is creating the housing bubble now. Do we get this kind of relief reciprocated from other countries?

Victoria Bischoff, at the Mail today published an article entitled. 'Now Buy to let borrowers will get a grilling too. Banks extend tough tests to would-be landlords.' Unfortunately, some false information was in the article - notably the bit about landlords enjoying 'generous tax breaks' (arghhh!) and also that btl landlords 'have been blamed for property prices rocketing' (but she didn't provide evidence to the contrary, so it looked like she agreed with the statement). I wrote to her a few days ago and possibly because of that (you never know) she did mention how some landlords would be scuppered by this. So, I have sent another (very long) email to her quoting the expert opinions of economists, giving an example of what it means for a portfolio landlord and would also like to thank Darren for his comments about the construction industry and Kathy's about things actually easing for FTBs, as I copied and pasted both excellent posts into my letter.

I would urge others, when you read either newspapers or emails with false information to take a little bit of time to write a riposte.

Actually, to make life easier I am going to paste my email here, without the lengthy example, for anyone to use as they wish:

Dear Victoria.

You may remember I wrote to you a couple of days ago (email below), regarding the Budget proposal on restricting 'tax relief' for landlords. I read, with interest, your article in today's Mail and am glad that you mentioned how significant this change is going to be for landlords, if it goes ahead.

I would like to make some observations, however, regarding some of the emphases in your article.

1. You point out how mortgage lenders are becoming stricter regarding checks on potential borrowers. There is a much bigger story with regards to lenders. I have written to the Council of Mortgage Lenders today on this very theme. I have noticed that lenders are still introducing new products, when in fact buy-to-let mortgages will be defunct very soon. Who is going to take out a buy-to-let mortgage when this biggest cost of the business can no longer be offset against tax, and when the interest component will be redefined as income to be taxed? (see my example below)

When people realise that this is the case (many landlords are still in blissful ignorance about this because of the misleading way it was presented by the Chancellor), no-one will take out BTL mortgages. The only people buying property will be cash purchasers and incorporated landlords who do exactly the same work as non-incorporated landlords, but will still be allowed to offset 100% of their borrowing costs. So much for the Chancellor's 'level playing field.' It is astonishing that the Council of Mortgage Lenders and individual lenders are not making representations to the Treasury about this.

2. You mention that the 'surge in landlord loans has been blamed for property prices rocketing, leaving many potential first time buyers unable to get on the housing ladder.' It is true that landlords are being blamed for everything from housing shortages to house prices surging; however, these arguments have no basis.

I have several points to make which underline this.

(i) These are the experts' opinions:

a. On the 9th of July, Paul Johnson, Director of the Institute for Fiscal Studies gave his reaction to the Budget, available at

http://www.ifs.org.uk/uploads/publications/budgets/Budgets%202015/Summer/opening_remarks.pdf.

He said, “The tax treatment of rental housing will be made less attractive though. At present if you own a property which you let out to tenants you can set any mortgage interest costs against tax due on rent received. The Budget red book states that this means that “the current tax system supports landlords over and above ordinary homeowners” and that it “puts investing in a rental property at an advantage”. This line of argument is plain wrong. Rental property is taxed more heavily than owner occupied property.” He said that the solution to the housing shortage is simple: build more houses.

b. The think tank, the Policy Exchange, has confirmed this noting that: “In truth, the tax system massively favours home ownership – for one thing home owners do not have to pay capital gains tax on their principal residence, whereas buy to let landlords do on the rental properties they sell. Rental income is also taxed (and even more now).” (Source: http://www.policyexchange.org.uk/media-centre/blogs/category/item/additional-policy-exchange-analysis-of-summer-budget-2015 ).

c. Professor Philip Booth of the Institute of Economic Affairs, reporting to the Treasury Select Committee, said the decision 'doesn't make sense at all,' and that it doesn't address the problems of supply and planning restrictions.

d. Paul Johnson of the IFS also said (I write from memory from watching the Treasury Select Committee on BBC Parliament) that it implies a refusal to recognise that mortgage interest is a cost of running landlords' businesses and should be offsetable.

e. Professor Michael Devereux, professor of taxation at Oxford University is quoted in the Mail as saying: “If you are trying to tax profit you have to give relief for the cost of earning it.”

(ii) With regards to rising house prices, although it is fashionable, and as your colleague, James Coney said 'lazy' to blame landlords (and immigration) there are a myriad of factors influencing house prices including, most importantly, not enough houses being built.

And there are various factors relevant here (not and exhaustive list, but it shows how landlords aren't to blame for everything), notably:

a. The rising cost of construction and repairs. Much of this due to tighter building regulations compliance, particularly energy conservation where suppliers of energy saving products such as insulation, have put their prices up due to the forced higher demand.

b. Shortage of building materials constraining production of new dwellings. Therefore developers are having to charge more to keep their margins.

c. Shortage of trades due to many having fallen away from the industry at the beginning of the downturn. (Try to get a good brick layer or plaster today, you will be waiting weeks if not months) Decent trades are charging far more than they were 12 months ago due to demand.

d. The first time buyers scheme and low interest rates have pushed up the cost of starter homes.

It is also possible that the perceived deterioration in first time buyers prospects is actually false. A landlord on the property website Property118 today posted the following:

'Talk of an affordability crisis appears overblown as homes are now more affordable than in 1997, new research suggests. A combination of falling inflation, low interest rates and rising wages means that homes in most areas of England and Wales are now more affordable than 18 years ago. The Ability to Buy index from estate agency Hamptons International showed affordability increasing from 133.2 points in 1997 to 135.5 points in the first three months of this year. This suggests that more people are finding it easier to purchase their first home or move up the ladder, and have more money left over after their mortgage repayments.

There is therefore, a mass of evidence which demonstrates that landlords are not responsible for stopping first time buyers getting on the property market .

3. You write, as many commentators do, that 'landlords enjoy generous tax breaks which allow them to write off the interest on their mortgages against their profits.' As the experts have made clear, this is just not true. There is nothing generous about the 'tax relief'; it is standard practice for all businesses to offset costs before profit is calculated. The current proposal is to tax turnover, which is unheard of in business.

I think an example helps to illustrate this (bear with me, as the consequences of this proposal are shocking when seen in this way):
[insert example]

I have brought this to the attention of a number of landlords, three councillors, my local MP, a court councillor who I know personally twice (An ex member of my staff), plus eighteen others. I have had a total of one single response from one landlord who was very grateful to me for bringing the matter to his attention. That is a pretty poor success rate!
I think the rest must be too busy reading the cartoons in the Sun or some other comic.
Regards
Paul

Reply to the comment left by "Ros ." at "08/08/2015 - 16:51":

Hi Ros

That’s socking it to her!

As regards point 2 perhaps you could send her a PS explaining how landlords enabled the construction of new-builds and improved the quality and capacity of old properties. Without that there would be fewer habitable dwellings now, and prices would therefore be higher, and so would rents:

City A M http://www.cityam.com/220861/bashing-buy-let-landlords-will-push-rents-and-hit-uk-economy-hard
quotes the chairman of the RLA saying:

“Between 1986 and 2012, 57 per cent of all new dwellings created were private homes to rent, the majority of which were by individual landlords providing vital houses for those requiring accommodation, especially those needing to move for work or study. These homes were not “taken” from those who wished to buy.”

Landlords did not just buy them, they enabled them to be constructed, by buying off-plan. This speeded up the sales process so that developers were able to borrow to get on with their next projects. And for each site they enabled, the developer had to build affordable homes as well. And, on each site, owner-occupiers were also able to purchase a flat or a house to move into. This in turn freed up properties in chains which ultimately allowed first-time buyers to achieve their ambition.

At the other end of the spectrum were old properties which owner-occupiers did not want to buy.

Sometimes this was because of the bad condition they had been allowed to fall into by their owner-occupiers. Landlords bought them and restored them, thus improving the stock of habitable housing.

Other old properties were unattractive to owner-occupiers because of their great size or urban location. Some landlords bought them and turned them into HMO’s to provide accommodation for more people than had lived in them before, thus increasing housing capacity.

To sum up, landlords increased the quantity of habitable dwellings. That is a permanent contribution towards reducing the chronic shortage of housing in this country.

Another area stopping first time buyers

Zero hour contracts, fixed contracts
I had a housing officer ask if I had anything to rent as she could not get a mortgage as her contract was only for 2 years.

Many employers now seem to give out these work contracts and years ago you got double time , time and a half, day in lieu. This now rarely exists ,workers get flexi hours and its written in the contract they have to work weekends bank hols late shift etc... Most on basis rate .

Many people now also have CCJ 's against them , for phone contract,s council tax, utility bills etc.. due to the past 5 years.

Reply to the comment left by "KATHY MILLER" at "08/08/2015 - 18:16":

This is interesting analysis.