Tax hikes slow house-building claims Berkeley Group

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Landlord Tax:

A major house builder has blamed, in part, recent tax increases on private landlords as a reason for not increasing its house-building.

Berkeley Group said today that a fall in demand by domestic buy-to-let landlords was one of a number of reasons why it would be impossible to boost housing supply, beyond its current plans.

It cited especially the decision to restrict mortgage interest relief to the basic rate of income tax and the 3 per cent stamp duty levy on the purchase of new homes to rent out. It noted the importance of supporting landlords who, it said, “buy early in the cycle and provide security of cash flow to enable complex, capital intensive developments to be brought forward.”

It comes at the end of a week in which the Office for Budget Responsibility warned of “subdued growth in residential investment.”

Recent research by the Residential Landlord Association’s research exchange, PEARL, has found that of the almost 3,300 landlords responding to its survey, 69 per cent said that the stamp duty levy, introduced in 2016, is putting them off investing in further rental property.

David Smith, Policy Director for the RLA, said:

“We have long warned the Government of the dangers of its tax raid on the private rented sector. Now we see its impact, with investment in new homes slowing and house builders not confident to up their levels of house building.

“Rather than taxing new homes, it is time for smarter, pro-growth taxation that recognises the rental market as a crucial part of addressing the housing crisis.”

The Residential Landlords Association: The home for landlords

The RLA represents the interests of landlords in the private rented sector across England and Wales. We’re home to over 50,000 landlords nationwide, with a combined portfolio of over a quarter of a million properties. A growing community of landlords who trust and rely on us to deliver day-to-day support, expert advice, government campaigning, plus a range of high-quality services relevant to their needs.

A statement by Berkeley Group today states:

“The market conditions in London and the South East are unchanged from the first half with home movers and downsizers continuing to be constrained by high transaction costs, the 4.5x income multiple limit on mortgage borrowing and prevailing economic uncertainty.

“In addition, domestic buy-to-let investors, who buy early in the cycle and provide security of cash flow to enable complex, capital intensive developments to be brought forward, are further impacted by additional transaction costs and the removal of interest deductibility.

“These factors, together with the changing planning environment and the time and complexity of getting on site following planning approval, mean that Berkeley is currently unable to increase production beyond the business plan levels.”

The Office of Budget Responsibility has published its latest Economic and Fiscal Outlook. It can be accessed at: http://cdn.obr.uk/EFO-MaRch_2018.pdf   Page 67 notes:

“Real residential investment rose by 7.8 per cent in 2017, up from 7.6 per cent in 2016. In line with our forecasts for house prices and property transactions, we expect relatively subdued growth in residential investment over the forecast period. Housebuilding is expected to slow in the near term, reflecting subdued turnover in the housing market and modestly higher interest rates.

“Housebuilding is then expected to rise as housing market turnover picks up. Housing improvements are also expected to slow in the near term thanks to recent weakness in real wages, before picking up as real earnings growth picks up. Over the medium term, residential investment is expected to grow broadly in line with real GDP.”

RLA PEARL’s report, The Impact of Taxation Reform on Private Landlords, is available at: https://research.rla.org.uk/wp-content/uploads/impact-taxation-reform-landlords-2018.pdf   It surveyed almost 3,300 landlords, of which 69% said that the decision to impose a three per cent stamp duty levy on the purchase of new homes to rent in 2016 is putting them off investing in further rental property.

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Section 21 no-fault possession claims down nearly 5000

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Landlord Action responds to latest MoJ statistics:

The latest landlord possession figures released by The Ministry of Justice (MoJ) show that the number of accelerated possession cases (section 21 no-fault eviction) are on a downward trend, with nearly 5000 fewer cases in 2017 than in 2016.

Paul Shamplina, founder of Landlord Action, believes this could be attributed mostly to changes introduced as part of the Deregulation Act 2015, but says it is likely to increase again as the impact of changes to tax liabilities take hold.

Annual volumes of possession actions in 2017 have all decreased from 2016¹; claims are down 3%, orders down 6%, warrants down 5% and repossessions down 12%.

Interestingly, the volume of claims brought by social and private landlords under the standard procedure have remained stable, showing only marginal decline from 2016, down 1.4% and 5.4% respectively.

Whereas accelerated possession cases, which had previously followed a moderate upward trend since 2010 before peaking in 2015 (at 37,663), saw a 13.7% drop in 2017 to 29,611 from 34,303 in 2016².

The accelerated possession procedure, or Section 21 no-fault eviction as it is often referred to, enables orders to be made by the court solely on the basis of written evidence and without calling the parties to a hearing.

Despite the majority of cases handled by Landlord Action being as a result of rent arrears (73%³), many landlords choose to use accelerated possession procedure (61%⁴), even though they forfeit the opportunity to recover outstanding rental money, because it can be a faster way of recovering the property so that it can be re-let.

However, Paul Shamplina says that new legislation has made the accelerated procedure increasingly challenging to use and not always quicker as it relies on several conditions being met.

Paul points out that a lot of landlords are still unaware of their obligations under the Deregulation Act, which came into force in October 2015, and this is delaying or hindering landlords’ chances to use the accelerated procedure.

Mr Shamplina’s comments:

“In a number of recent cases, we’ve found that landlords have not provided tenants with an Energy Performance Certificate and a Gas Safety Certificate before the tenancy began, or they did not protect their tenant’s deposit, all of which are legal requirements in order to serve a section 21 notice. By the time landlords come to us, the relationship with the tenant has usually broken down making it harder to gain access to the property and deal with these issues, meaning the landlord can’t use a section 21.”

According to the MoJ, in October to December 2017, accelerated landlord possession cases took 7.3 weeks to progress from claim to order, compared with private landlord cases which took 8.2 weeks.

However, from claim to possession warrant, accelerated and private landlord cases took 15.9 and 14.4 weeks respectively and from claim to repossession by county court bailiff, accelerated cases took on average 23.1 weeks while private landlords took 21.8 weeks.

“The term ‘accelerated’ is not really an appropriate name for this procedure, as the statistics show, it is not actually quicker any more.  Despite this, I predict we will see another rise in use of the accelerated possession procedure over the next couple of years as more landlords are forced to sell of properties off the back of rising interest rates and increased tax liabilities” adds Mr Shamplina.

¹ Ministry of Justice Landlord and Mortgage Possession Statistics (October -December 2017)

²

³ 24 out of 33 landlords which used Landlord Action’s services was as a result of rent arrears

⁴ 20 out of 33 landlords which used Landlord Action’s services used no-fault Section 21 accelerated possession procedure

Landlord Action is a UK based organisation helping landlords, letting agents and other property professionals. As a champion for landlords, it has campaigned extensively and was instrumental in getting the law changed to make squatting a criminal offence.

It was founded in 1999 as the first ever fixed-fee tenant eviction specialist, they revolutionised this area of legal practice. They have now acted in more than 35,000 problem tenant cases and are considered the authority in this field.

Paul Shamplina is one of the key founders of Landlord Action with 25 years experience in the legal field. He has previously worked as a legal clerk, private investigator, debt collector and certified bailiff.

www.LandlordAction.co.uk

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Slowing investment in buy-to-let is hitting tenants

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OBR Report:

With fewer new investors in buy-to-let properties around, tenants are beginning to struggle to find suitable accommodation at an affordable price in some locations.

New landlord taxes and more stringent letting regulations, as well as stricter mortgage lending criteria and the prospect of higher interest rates and slowing house price growth are combing to have a cooling effect on prospective property investors.

However, many small-scale landlords can still rely on property for retirement income, and as an asset class it still compares favourably with other alternatives, (building societies, banks and stocks and shares etc) when it comes to investment returns. With good tenant demand and rising rents, small-scale landlords with minimal borrowing are still achieving excellent yields.

Many larger portfolio landlords have been planning to or already do operate their businesses through a limited company. There are tax advantages in this mode of operation for some, but the costs involved in converting a privately held portfolio into an incorporated structure may be prohibitive for many; though it could be viable for new purchases. Anyone contemplating this should seek professional advice.

A recent Office for Budget Responsibility (OBR) report shows that the government’s policy of discouraging buy-to-let investment through the various measures listed above may not be working in the way it intended, i.e. encouraging more owner occupier investment, along with more corporate build-to-rent investment.

In its Economic and Fiscal Outlook the OBR has warned of warned of “subdued growth in residential investment.”

Commenting on the report Alan Ward, chair of the RLA, has said:

The “…assessment by the OBR demonstrates the folly of taxing the supply of new homes to rent.

“It is more important than ever that we recognise the dynamic role the rental market can play in swiftly responding to the country’s ever changing housing needs.

“The government should come forward with a package of pro-growth tax and planning policies to support private landlords who want to invest in the new housing the country needs if renters are to be able to find the accommodation they want.

“The build to rent sector is not delivering at the rate required and in the past private landlords have delivered three out of five of all new homes.”

The OBR Report (Economic and fiscal outlook, March 2018) says:

“Real residential investment rose by 7.8 per cent in 2017, up from 7.6 per cent in 2016. In line with our forecasts for house prices and property transactions, we expect relatively subdued growth in residential investment over the forecast period. Housebuilding is expected to slow in the near term, reflecting subdued turnover in the housing market and modestly higher interest rates.

“Housebuilding is then expected to rise as housing market turnover picks up. Housing improvements are also expected to slow in the near term thanks to recent weakness in real wages, before picking up as real earnings growth picks up. Over the medium term, residential investment is expected to grow broadly in line with real GDP.”

House Price Inflation Forecast

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