My Correspondence with my MP and Government?

I wrote a letter to my local MP asking for him to have a serious look at how the new legislation is effecting me. He was very sympathetic and said he would forward it to the Government for consideration, which he duly did.

I have received the usual response that I don’t think shows much understanding of the issues. My original letter is below. I would very much like some opinion and advice as to whether I should respond and with what?

Meeting with Gareth Snell MP

New & Pending Legislation/Rules Affecting Me as A Landlord

1. Capital cost Mortgages no longer getting interest tax relief – Section 24 = making little or no money after all other costs
2. Possible Changes to the eviction rules – Section 21 = stricter rules on who can rent
3. Capital Gains Tax Trap – hard to sell and make enough to cover the costs = landlords not able to sell.
4. Removal of being able to charge fees, even though costs are incurred = tenants can put applications in all over the place, knowing they are not going to fulfill their side of the arrangement even if they pass.

My History

I am intelligent and very hard working but unable to commit to the traditional 9-5 working day due to ill health; so, it made more sense for me to be self-employed. I worked as a beautician and then had a catering business. I soon realized that I could not work or survive financially on the basis of my man-hours in return for an hourly wage. I needed a business where I could invest time and energy at my pace to produce a passive income.

I started to purchased my houses from nothing, 20 years ago, relying on buying slowly using capital growth and equity release = huge Interest Only mortgages with very high loan to value, in some case negative equity from the start (Black Rock Mortgages).

I’ve never been able to get life insurance and due to having a shortened life expectancy there was no point in investing in a pension. My houses have been and are my income and my only financial future.

What has happened?

The government set the stage with the option to get into the buy to let business in the 1990’s. I’ve worked very hard through ill health, another 9 years on dialysis, second transplant, stage 4 cancer and treatment, seizures and other associated complications, to make a successful business that can function very well even whilst I’m ill.

So, what is the problem?

Unfortunately, the Government has decided over the last few years to introduce, take away and change many of the fundamental rules for landlords. Some examples of this are in the list at the start of this letter.

I believe some of the intentions of the many changes and this tax (as well as increasing revenue) is to get rid of bad landlords, empower tenants and restrict bad (?) practice. At every turn Landlords have had their rights restricted, their income streams dammed up and their costs increased.

This is all before we think about the interest rates!

So I now rely on the very low interest rate. It has meant that over the last few years I’ve been able to do extra work on my houses. In retrospect, I should have used this money to reduce my Interest Only Mortgages i.e. tried to survive instead of improving the living standards of my tenants.

If the interest rates go up even a little bit, I will potentially have to go bankrupt.

An Observation

Section 24 doesn’t affect landlords who can: –

• Afford to buy houses outright, have very small mortgages, or have paid them off already
• Afford to pay the costs including capital gains tax to transfer their properties into limited companies, or meet the criteria to have these costs minimized
• Afford to move abroad to a zero-rated tax country

This is a direct tax only on the landlords who have taken out mortgages and poorer landlords. I do wonder if this could be classed as discrimination?

Potentially the only landlords left standing could be the cash rich ones, the institutions, the landlords able to transfer their houses into limited companies or move abroad and the council.

The Consequences

Not allowing me to have my mortgage interest, tax deductible, means that the huge debt that I took on to build my business has become the very thing that could take my business down. The long-term business plan I had put in place for my financial security is no longer viable and I have potentially no other options.

A major consequence of considering changing the eviction rules without due consideration of now each change will impact, is that it is being planned to make it harder and in some cases impossible for landlords to evict tenants, here is an unfortunate example of this – There has been a case recently where a problem has been identified, under another new rule that tenants have to be given a copy of the Gas Certificate before they move in. Due to a genuine clerical error a copy was given to the tenant after move in.

A Section 21 eviction was subsequently issued and won. However, it was turned over by the court due to the late Gas Certificate.

The result – This landlord can never get this tenant evicted, as this situation can never be resolved under the newly amended rule! It has even been admitted that the Gas Cert rule was never meant to cause this situation.

I think that in theory the government, believe most people would like to buy their own home, but the reality is that many tenants rent for a reason.

The Capital Gains Trap is where the profit made on the sale of a property, after paying off the mortgage, solicitors and agency fees, is less than the tax payable to the government. This affects landlords with large mortgages, those of us who were advised to take out IOL (interest only loans). We were sold these on the basis of capital growth over the term of the loan, normally 20-30 years. This would be the case if the loans were able to see out their original term, but the Governments act of changing the goal posts is forcing us to sell before we’d expected to.

Fees are a way of recouping our costs. Most landlords relied on an Estate Agent to fairly administer this fee in finding them a tenant. Unfortunately, the Agents became very greedy, and rightly were told to correct this. Unfortunately, this resulted in all fees being banned and as a consequence becoming another cost to the landlord. I’m lucky because I manage my own houses. I used to charge £65 per applicant (guarantors free) to cover everything, so I’ve only lost the ability to cover the outgoings.

Most of these consequences are huge to me and they could also leave my tenants homeless; most of whom have been with me for many years. The countrywide impact could be disastrous, resulting in private landlords being very careful who they choose to house, there just will not be enough leeway to take on high risk tenants, i.e. DSS, universal credit, low waged, bad history, addiction etc. As a natural result of this, tenants will find that rental homes become more expensive and harder to secure.

I could get out of this situation by selling 1-2 houses per year and taking advantage of the annual CGT allowance, but it could take 2 decades for this to conclude, in which time I will potentially have passed away, and if I was still around I’d have no income! If fact there would come a point where the economies of scale would make the houses no longer able to support me, or the cost to sell more than the profit, after paying off the mortgage, agent, solicitors, tax etc. that I’d have exhausted all my funds.

I have been so upset, disheartened and unable to see a way through this. Thinking recently that my only option was bankruptcy, a life on the dole, a council flat and letting all my tenants down; I was rushed to Greenfields Mental Health Centre with suicidal thoughts. After emergency counseling and some expert guidance, I have decided to try to understand the law and fight these unfair laws and rule changes. To this end I start a law degree next month; in the meantime, I’m going to try to get my property business through the next few years.

In parallel to this, I have offered some of my working tenants the option to buy the house they rent off me. I have only 1 tenant so far who can afford to buy their rented home, I am shocked, as I believed, as I’m sure the government do, that most working tenants would prefer and could afford to own their own home.

I aim to give any tenant buyers a small reduction in the price; after all I will have saved on agency fees and avoided the rent void if I was evicting them first. I’ve tried to find out if there is a tax break if I do this, after all isn’t this one of the results the government wanted? As yet I can’t find any incentive to do this, other than to try to help my tenants.

If I end up losing my business, I will be another body on benefits and asking the government to provide me with a suitable home.

Landlord & Resident Stoke-on-Trent

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