Mortgage Express assets sold in £11.8 billion Bradford & Bingley deal

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UK Asset Resolution (UKAR) has today confirmed the sale of two separate Bradford & Bingley asset portfolios comprising performing Buy to Let loans for a total of £11.8 billion to Prudential plc and to funds managed by Blackstone. Non-performing loans are where a scheduled mortgage payment has not been made for more than 90 days…. Read more

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Editorial, March 2017

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Despite landlords’ best efforts to persuade government otherwise, one of the most punitive tax regimes in Europe will next week descend on them – the start of a four-year phased removal of mortgage interest tax relief, which will hit those erstwhile enthusiastic buy-to-let investors with higher earnings and higher mortgage borrowings hardest.

I can’t help feeling the government is being highly disingenuous when minister after minister repeatedly says how much they value the private rented sector and the small landlord, yet they incessantly introduce disincentives for small-scale landlords, currently making up at least 85% of residential rental supply, while incentivising large-scale institutional investment.

It seems madness to me that when eighty-nine per cent of landlords are private individuals responsible for 71% of all private rented dwellings, with a further 5% of landlords being small company landlords responsible for 15% of dwellings (DCLG Private Landlords Survey 2010), that government appears not to truly value such a resource. Government frequently describes the private rented sector (PRS) as a cottage industry.

Most of the growth in the PRS has been from individual landlords, and a major driver of this has been the availability of buy-to-let mortgages. One study carried by the Intermediary Mortgage Lenders Association (IMLA) found that since the introduction of buy-to-let mortgages in 1996 they have financed 1.4 million homes in the PRS. When these individuals sunk their money into this, they had no idea the government would introduce such a tax.

A tax on total income, as opposed to taxing profit after deducting loan interest, a benefit every other business in the land has always enjoyed, will have the effect of driving some landlords out. In the short-term rents will inevitably rise in a rental market which is already under supplied with accommodation, piling more misery on cash strapped tenants.

Longer term, increasing supply through large-scale new build blocks may alleviate some of the problem, as the government intends, and as it says in a recent report: “Government [has] emphasised the importance of increasing institutional investment into the PRS to fund large-scale, professionally managed developments.”

But government admits that: “Despite the 2010 Government’s focus on institutional investment, the majority of PRS properties in England are currently built, acquired and managed by individual, buy-to-let landlords,” and so far it would seem institutional investment has not has the impact government intended.

So, where are the incentives for the private landlord? Where are the tangible measures to encourage and help the small-scale landlord as opposed to the increasing regulatory burden, the punitive tax regime and the shabby treatment of those individual landlords, both at national and local level, who carry out such a valuable service to the community using their own hard earned cash?

Will the second Rugg Review of the PRS announced this week make any difference, or will that too pile more pressure on the small-scale landlord?

However, the Residential Landlords’ Association (RLA) is welcoming the new review to be funded by the Nationwide Foundation, a charity that says it aims to improve the lives of people in need.

The last Rugg Review was published in 2008 but since then the private rented sector has almost doubled in size, with more and more people living in rented homes. The University of York’s Julie Rugg and David Rhodes, were authors of the original ‘Rugg Review’ entitled “The Private Rented Sector: Its Contribution and Potential”.

Let’s hope that unlike Sajid Javid’s recent white paper (which was again all about institutional investment with little mention of small-scale landlords), this Rugg review and others like it begin to recognise the contribution that the small-scale private landlords can and do make.

Tom Entwistle

… LandlordZONE.

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APPG on Fair Business Banking and LPA Receivership

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There is now an All Party Parliamentary Group on Fair Business Banking and it is making great headway including with LPA Receivership: Link to site http://www.appgbanking.org.uk/ The Group is asking for victims to engage their MPs and ask them to support the work of the APPG and also us as individuals. The APPG is also… Read more

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Landlords – taxed but still relaxed…

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The Chartered Institute of Taxation (CIOT) is reminding landlords of residential properties that the first phase of the restriction of tax relief they get for mortgage interest to the basic rate of income tax begins on the 6^th of April. Three further phases over the next three years will gradually reduce the relief allowed.

The change means that finance costs such as mortgage interest and finance set-up costs will no longer be deductible in full when working out taxable property profits. All individual residential landlords with finance costs will be affected, but it has been estimated that the measure will have minimal impact on the around 50% of small-scale landlords, these with little or no mortgage finance.

However, higher rate tax payers, and some on the border line who may be pushed into a higher rate tax band, simply because their rental income is added to their other income, will pay more tax. Unlike the old system where finance costs were deducted from rental income in calculating taxable rental profit, now no deduction is allowed, except for a tax credit amount on total income, which will be a maximum of 20% by 2021.

As landlords become more aware of the implications of these changes they will be considering their options. Some may be considering selling properties, paying down finance or incorporation, though the Chancellor’s words in the Budget on the latter are ominous: Mr Hammond’s exact words were:

“We must ensure that our corporate tax regime does not encourage people across the economy to form companies simply to reduce tax liabilities, pushing the burden of financing our public services onto others. HMRC estimates that existing incorporations cost the public finances over £6 billion a year and the OBR forecast an additional annual cost to the Exchequer from those choosing to incorporate of £3.5 billion a year by 2021-22.” Read more here

Brian Slater, Chair of CIOT’s Property Taxes Sub-Committee, said:

“This is one of the most significant changes to the buy-to-let market in decades and will particularly affect heavily geared buy-to-let landlords. However, it is sensible for landlords to be cautious about making any knee-jerk moves in response to the changes.

“A decision to sell properties may be tempting for those that are highly geared, meaning they are carrying a lot of debt from perhaps buying many properties or a couple of expensive ones and can no longer benefit from the relief.

“Helpfully the change is being phased in over four tax years, so that the full effect of the restriction will not be felt until tax year 2020/21. This will give landlords extra time to consider their options.

“Taxpayers may have to decide whether to continue in buy-to-lets with reduced profits or simply sell their properties, which may impact on the number of houses and flats available to buy. Or such people could move into commercial property renting, but they will find that to be a more specialised field.

“The restrictions apply to individual landlords and not to companies, which will continue to receive relief for mortgage interest and other finance costs in the usual way. This means that the change may impact on the look of the rental landscape in the future if many individual landlords choose to incorporate and become companies, although this is not without difficulty and incorporation itself can involve tax charges; these may be stamp duty land tax on the market value of properties and possible capital gains tax on properties transferred into a company.”

With these tax changes looming as the biggest single issue affecting buy to let landlords in the UK, many have concerns about the future of their business. However, landlords are being advised to take their time and make small adjustments at first if necessary, and dismiss their fears about taxation changes.

A recent Property Wire panel experts’ debate on the future of buy to let concluded that buy-to-let landlords “…should not worry about it, instead they should be “taking it as part of the cost of running a business.”

Panellists stressed the importance of treating buy to let as a business, and that it needs to be run as a business. Landlords should realise that “they are in it to make money and therefore they need to make sure they are on top of their costs.” Read more here

Robert Pullen of accountancy, tax and advisory firm Blick Rothenberg, in a recent article for the Investor’s Chronicle, thinks that “Landlords still see the future of property investment as attractive, with the shortage of housing in the medium term supporting the trend of growth in rents”.

Commenting on the importance of the industry, Pullen says that the UK residential property sector has around the same total value as all of the companies listed on the UK Stock Exchange combined – it is a massive industry populated largely by small-scale investors owning less than 3 buy-to-lets.

“The market is diverse, with city apartments being the most favoured by passive investors due to the ‘lock and leave’ principle. In particular, ‘buy-to-let’ investments have become very popular, with most lenders now offering a buy-to-let mortgage package.

“It’s an investment that’s suitable for investors who are prepared to tie money up in real UK property with no immediate access to it, other than rental income. The investment is illiquid and there are transactional costs on purchase and sale. Money can be raised by mortgage against the property, with the debt repaid out of rents. Individuals who relocate abroad benefit by being ‘locked in’ to the UK housing economy while living away, giving protection from UK house price inflation,” says Pullen.

There is no doubt that with land availability at a premium, continuing planning restrictions and a severe shortage of affordable housing, plus high demand from tenants, small-scale landlords can continue to play an important role in supplying rental housing and maintaining an active market for those who want to rent property.

Landlords can still expect a relatively bright future: this with the rented housing sector at around 20 per cent of the market and expected to continue growing, due largely to high transactional costs of ownership and lack of regional affordability for young homeowners, increasing job mobility and an influx of immigrants.

Further information on the change is available on Gov.uk here

… LandlordZONE.

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What is the 2016/17 tax year position on claiming for “Home as Office”?

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A few years ago the following were published on P118: June 2012: https://www.property118.com/claiming-home-as-office-expenses-for-landlords/29305/ August 2013: https://www.property118.com/question-can-landlords-claim-for-use-of-home-as-office/42244/ Has anything changed since then? Many thanks Michael

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Telford landlord unlawfully evicted tenant

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Unlawful Eviction: A Telford landlord pleaded guilty to two charges relating to the unlawful eviction of a tenant. David Beattie appeared before Telford magistrates in a case brought by Telford & Wrekin Council when Beattie admitted threatening violence against a tenant who, in November 2015 left the property he rented in Dudmaston, Hollinswood. Beattie was […]

… LandlordZONE.

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