Summer Budget 2015 – Landlords Reactions

Reply to the comment left by "steve p" at "01/12/2015 - 14:38":

How on earth did they meet income multiple/affordability criteria for a £187500 mortgage if he is on £27k and she is, presumably, on less than that?

Four times joint income? It's do-able, though a bit scary. If they were my kids I'd be advising them to rent out their spare rooms. At least it's an option.

Reply to the comment left by "Natalie Wilmot" at "01/12/2015 - 16:39":

Yes, CGT would be high, but you would still make a nice profit on your original investment, especially if you'd started the business 20 years ago you had the best of it, and you can keep majority of this profit.

My real question is how could you get into a situation that the mortgaged part of your business makes you a yearly 1.3% loss?

I mean interest rates are keep going down, your interest payments hasn't increased since you took the mortgages, while rents are going up, so your income has not gone down, so I think it was never a profitable investment, why have you taken these mortgages at all?

Reply to the comment left by "Natalie Wilmot" at "01/12/2015 - 11:17":

Hi Natalie, firstly I must say "extremely well done" on having built a property portfolio of £17m with only 37.5% gearing as of today. More than highly commendable. I feel humbled with my feeble <£3.5 portfolio albeit unencumbered. However although I totally bow to your success, something's not quite adding up with your sums as per Appalled Landlords comments.
Even if there was no loss of 10% W&T & no Clause 24, I would question why you're i) only receiving a "gross" rental yield of 3.294% (even in London after expenses I work on trying to achieve in excess of 4.35% after expenses & this is after allowing for void periods which I tend not to get), unless of course your units are in London but worth in excess of £1-1.5m whereby the yields do start to reduce dramatically and ii) why you're paying 4% in interest with only a gearing of 37.5% (you should be getting rates much lower than this unless you have HMO's but even then I feel you can do a lot better than paying 4%) and iii) prior to deducting mortgage interest, you're paying 16% in overheads (£90Kpa) which seems a bit on the high side.
Back to the impact of Clause 24 - with a portfolio worth £17m you definitely should continue to argue your corner but meanwhile be speaking with Mark about incorporating.
This having been said I want to finish off by saying once more "well done you" on building a £17m property empire during what has been a tumultuous period and no matter what your expenses or gross yields are, your income from this portfolio is delicious. Smack lips!

Reply to the comment left by "Laura Delow" at "01/12/2015 - 17:25":

Hi Laura

Just for the record it was not I who commented on Natalie’s portfolio or borrowings. I only corrected errors in the tax calculations.

Reply to the comment left by "James dengel" at "30/11/2015 - 12:55":

That's fair enough - I appreciate that the clause will effect many people in many different ways but I was just asking based on the figures that Ros gave. If that example is being sent to Newspapers and they decide to publish then readers would be asking the same thing. I thought it was (and is) a reasonable question...

Reply to the comment left by "Mark Alexander" at "01/12/2015 - 08:09":

Touché -sounds familiar from somewhere!

My friend, and fellow landlord, James Fraser, has made the point elsewhere that there have been, in some areas at least, a bit of a shift of attitude towards landlords. Perhaps the most surprising and most pleasing is in the Guardian readership where recent comments on their website have definitely been supportive towards the predicament we face.

Perhaps the tide of public opinion hasn’t changed quite yet, but maybe we’re experiencing a bit of an undertow in the sea of vilification we normally face, and just maybe that difference of opinion has led to the petition growing in signatures by 2.5% in the last 4 days! Whilst we have little chance of hitting the 100k mark by the end of January, the petition does serve as a great barometer of the growing awareness of the lunacy we’re experiencing from Mr Osborne.

As landlords though we seem to be split in our opinions of what the series of tax grabs is all about. The Chancellor is attacking us in a frenzy, like Anthony Perkins stabbing frantically at the shower curtain in Psycho, but is he trying to kill us off or is it to bleed us dry?

Whilst Conservatives say that they’ve got a policy of home ownership I’m not so convinced, especially when it comes to GO. Firstly, because most people say they want to own their own homes (regardless of whether they can afford to, or are capable of actually running a home), it makes a great sound bite for voting time. GO is capitalising on emotions, which is all too frequently what politics is about.

The drop in the ocean he’s proposing with 400,000 new affordable homes also doesn’t really enforce the position of home ownership. If he could do that each year rather than over 5 then it might be taken seriously.

But a Chancellor is all about the money. This one has found a cash cow in landlords because public opinion is against us. He’s therefore taxing us all he can under the guise of the policy of home ownership. If we sell up he will reap CGT, if we don’t then he’s taxing us through rental income and mortgage interest, but tax us he will. In the long term though, he won’t want OOs because he can’t tax them in the same way. So George’s ideal is that everyone is a tenant because of the tax he can claw in.

If he wanted landlords to quit then there are other measures he could use such as the rent controls we all fear. He could have just moved towards stopping BTL mortgages but hasn’t. He could have re-introduced MIR for OOs (Ha! No chance!). There are lots of things that he could have done but they wouldn’t drag in the tax.

Why is it an advantage to have big corporates move in? Well he has a housing crisis to address and they will help him with that, but of course this goes against home ownership. That’s one reason why I really don’t think he gives a toss about OOs. He can tax the income through the corporate rents, but of course only at corporation rates which is not as good. The overseas companies won’t even pay that, just look at what Amazon, ebay, Starbucks and so forth paid in tax in the UK. Not that they have to be American or even foreign of course, according to Private Eye, Osborne and Little have paid no corporation tax for the last 7 years, and on top of that David Gauke used to work for an organisation that advised companies how to avoid UK tax.

So from my perspective it makes no sense for a Chancellor to take measures to reduce tax revenue as it is completely counter-productive to what his role is about. Let’s not also forget that if he forces HMO landlords to sell up then he’ll exacerbate the housing crisis in enormous terms. I have no idea how many HMOs there are in the country, I’ve tried to google it to find out but frankly I doubt anyone really has a handle on it. Let’s assume it’s 25k and the average in each is 5 heads. If 125k people suddenly need to be housed then he’ll no wipe out a good chunk of his planned build and it’ll move him back towards Square One.

Whether he actually appreciates the effect this taxation war may have on the foreign workers I don’t know, and I’m not sure he’d actually care if he does. As I’ve said elsewhere I have very serious concerns about the future of the country in regards to this aspect. I believe that George Osborne is intentionally forcing rents to go up, largely so that he can take even more tax, but also because the figures will look even more attractive to the corporates that want to build their huge rental developments. Suppose though we have a situation in the 2020s that see rents having risen to ridiculous levels. Numbers of our immigrant workers may decide that the UK is no longer an attractive place to live and head off home, where in many cases their domestic economies have improved significantly since they left. George will probably be crowing about the improved net immigration figures and possibly an improved unemployment situation too, but the cost to the economy will be with us forever. As each person leaves the country a potential tax source leads with them and the average age of UK residents goes up. Currently we have more over 65s than we do under 16s. In 17 years it’s predicted that we will have almost double the number of over 65s in the country and 20% of the people that live here today will live to see their 100th birthday! The problem for a future Chancellor is that oldies don’t earn much money and nor do they spend it, so the tax opportunities will diminish whilst the demand on support services increases. A pretty bleak situation I think.

However Mr Osborne is determined to sort out the deficit and everything else matters little, apart from wars in far off lands etc. If he makes it through the next election, that is he gets through the leadership contest and the election itself, then the tax measure he’s imposing now will only really start biting hard then. His plan may be to do only one term as PM and leave the mess he’ll be creating to someone else because that’s the sort of person he’s proving himself to be.

Could he be trying to force us out? Yes, nothing is impossible with this maniac but I still think it’s unlikely to be a part of his plan.

Interesting times.

Reply to the comment left by "John McKay" at "01/12/2015 - 18:27":

A very well written and interesting post. I guess we'll have to wait and see what his true intentions are. I think we're all (LL and tenants), in for a very rocky ride for the next few years.

Reply to the comment left by "David Gray" at "30/11/2015 - 22:39":

@ David Gray

Welcome to the forum!

If GO had targeted ALL residential landlords in an attempt to reduce the size of the PRS in a carefully planned and targeted approach to help tenants buy. But he did not do that. Institutions are actively being encouraged to take over the PRS and actually increase it.

Anyway David, I was wondering if you had any thoughts as to whether there might be grounds for a legal challenge on the basis that Clause 24 is discriminatory (either via UK or EU courts)? Discriminatory because despite what much of misleading govt rhetoric suggested that Clause 24 was an attack on all residential landlords particularly the wealthy, it clearly was not.

The largest number of residential landlords in the UK own unencumbered properties. They and any landlords who are incorporated (bought their properties in name of a company) were to be completely unaffected by Clause 24. There is no reason to suggest that these landlords are any more professional or customer focussed than many encumbered private LL businesses. In fact I have seen on countless occasions I have seen the exact reverse proven to be the case (substandard performances from (inherited wealth) unencumbered LLs and corporates). Remember a corporate LL can own anything from 1 rental property upwards.

There is reason to believe that both unencumbered and also incorporated landlords may actually indirectly benefit from the implementation of Clause 24 due to:
- Less competition as some small and medium sized private landlord businesses being financially crippled and forced to leave the sector. Highly leveraged private landlords will be the first to feel the impact of Clause 24, but so will any landlords with lower levels of borrowing whose rental properties are generating low yields.
- Increased levels of homelessness.
- Upward pressure on rents as a result of chaos created by Clause 24.

If the Treasury wanted to attack residential landlords, ok fine, but surely implementing a levy for any residential property that was not used as the primary residence of the owner would have been much fairer? Especially if it was to be applied regardless of whether the owner is encumbered, incorporated or not.

In George Osborne’s Autumn statement on the subject of rental properties and second homes he said: ‘Many of them are cash purchases that aren’t affected by the restrictions I introduced in the Budget on mortgage interest relief’. He conveniently forgot to mention corporate landlords were also not affected, but nevertheless is his comment an admission that he realised that Clause 24 is not fit for purpose or fair?