Associations call for PRS reform in Budget
- Published: Thursday 20 February, 2020
- Updated: Tuesday 05 May, 2020
- By: Nicola Eaton
The Budget is approaching, galvanising calls to the government for a rethink on landlord taxes.
Data from letting agent, Belvoir, shows that 72% of their franchisees are forecasting rent rises. This is off the back of tax changes, regulatory demands and extra charges resulting from the Tenant Fees Ban.
The RLA and NLA (Regional and National Landlord Associations) have jointly called upon the government to take stock.
They want the government to recognise that the falling investment in new buy to let property, as a result of increased costs, is punishing tenants financially and causing landlords to switch to holiday letting for its tax benefits.
Dorian Gonsalves, chief executive at Belvoir, shares this view:
“Moving forward, what is important is for the Government to implement a fair system that works for both landlords and tenants.
“Failure to do so is likely to result in a shortage of new rental properties, making it more difficult for tenants to find an affordable home."
7-point plan to stop fall in supply of homes
The RLA and NLA have jointly issued a proposal to the government. It outlines plans to tackle the decline in available homes for the UK population.
The proposal covers the following 7 areas of consideration:
- Ending tax anomalies
- More choice for tenants - boosting supply of homes to rent
- Creating a market for tenanted properties
- Supporting tenants into home ownership
- Energy efficient rented homes
- Supporting disabled and elderly tenants
- Supporting vulnerable tenants
The associations highlight that landlords are being pushed away from long term lets and towards holiday rentals, as a way of avoiding lost Mortgage Interest Tax Relief on income tax.
They give a simple illustration, which shows that qualifying holiday lets can result in a vast difference in income tax bills, for higher and additional rate tax payers:
Annual mortgage interest payments
Tax relief applied
Income tax paid (20%)
Income tax paid (40%)
Income tax paid (45%)
Source: “BUDGET 2020: A PRIVATE RENTED SECTOR THAT WORKS FOR ALL”, NLA, RLA.
The first action called for, asks for the government to align its tax policy with its wider objectives.
Boosting the supply of rental homes
The associations have proposed that landlords increasing the ‘net supply of housing’ should be exempt from the 3% stamp duty surcharge.
Properties falling within this definition would be:
- New builds
- Redevelopment of empty properties
- Commercial premises being converted into residential
- Large properties converted into smaller, more affordable units
In this way, landlords can be encouraged to invest in property which increase the UK’s housing stock.
Creating a market for tenanted properties
Using evidence gathered in the RLA’s 2019 landlord and agent survey, the proposal highlights that 74% of landlords believe that a property should be vacant at sale.
The upshot being that any incumbent tenants will be asked to leave.
Instead, it is proposed that landlords buying rentals with tenants in situ, should be exempt from the 3% stamp duty surcharge. The result being a reduction in tenant evictions.
Supporting tenants into home ownership
RLA research found that 58.2% of landlords were put off from selling property, due to the Capital Gains Tax (CGT) they would pay.
It is therefore proposed that landlords selling to their tenants should be subject to a reduction in, or exemption from, CGT.
Energy efficient rented homes
The proposal suggests a tax relief incentive, to encourage landlords to invest in works to improve the energy efficiency of their properties.
Where any work is recommended within an Energy Performance Certificate, the costs involved would be tax deductible.
This recommendation is felt to be self-policing, because recommendations on an EPC are bound by law and made by a qualified assessor.
A by-product of this is the additional investment, by landlords, in local services.
Supporting disabled and elderly tenants
To support the growing elderly population and differently abled individuals, the proposal recommends that the government should make the Disabled Facilities Grant more readily available.
At present, works to modify a property are ineligible for this grant, unless there is evidence a tenant will live at the property for five years.
The NLA and RLA are asking the government to make a statement of intent from the landlord and tenant sufficient evidence of this.
Furthermore, it is proposed that a CGT relief could be used to incentivise landlords to retain property adaptations and let to differently abled and elderly tenant groups.
Supporting vulnerable tenants
The final measure in the proposal concerns tenants receiving benefits.
The associations have urged the government to make rental property more affordable to this group, by basing the Local Housing Allowance (used to calculate housing benefit) on the 30th percentile level of local rents.
To read the statement in full, view it online here.
UK house prices up 2.2%
The Office for National Statistics has released its December 2019 report, showing average UK house prices increased by 2.2%, over the year to December.
Not only this, but all regions of the UK experienced growth, for the first time since February 2018.
Property in Yorkshire and the Humber experienced the greatest rate of change, up 3.9% year on year. This region stands out from the pack, being 1.1% ahead of the East Midlands which is in second place at 2.8% growth.
By contrast, the South East experienced a more modest 1.2% house price growth, the lowest of all the regions in England. The West Midlands was a little further forward at 1.4% growth.
Recent, positive change
House price growth across the UK has been slow over the last three months, but this has changed of late.
Since July 2019, there has been a consistent pattern of increasing rate growth. September and October stuttered at 1.1%, but in November this jumped up significantly to 1.7% and then to the most recent 2.2% figure.
Average house prices
In December, the UK average house price was £235,000, up by £5,000 on December of 2018 and up 0.3% month on month from November.
By UK country, average prices ranged from £252,000 in England to £166,000 in Wales, £152,000 in Scotland and £140,000 in Northern Ireland.
Of the regions in the UK, London prices continue to far exceed those in any other area, currently sitting at an average house price of £484,000.
Outside London, the South and East continue to dominate the more expensive end of the market. Current prices range from £263,000 in the South West to £325000 in the South East.
For landlords, this upward trend in prices is only good news, as capital appreciation can reduce the loan to value of property and therefore enable access to more favourable mortgage rates at renewal.
Frustration at appointment of latest Housing Minister
The tenth MP to take the title in as many years, former IT consultant, Christopher Pincher has become the latest Housing Minister.
Mr Pincher is, in fact, the nineteenth person in the role in twenty-three years. Only Grant Shapps and Brandon Lewis held on to the role for more than two years.
With this in mind, the natural question is, will Pincher be in the role long enough to affect positive change?
The stability normally associated with bricks and mortar, are severely lacking in the Housing minster role. Yet, housing is so high on the political agenda.
The sector encompasses a range of complex considerations, including amongst others, construction, finance and public services.
There is a lot for Mr Pincher to get to grips with.
Who is Christopher Pincher?
Christopher Pincher is MP for Tamworth in Staffordshire. Prior to the Housing role, he was the Minister of State at the Foreign Office and has spent time working in the Whips Office.
A limited picture of his views on the rental sector can be gathered, through his stance on matters relating to the sector, which include:
- In January, we shared news that the government would be distributing £4m to local councils to tackle rogue landlords. On his website, Mr Pincher supported and welcomed the news.
- He is a supporter of the Tenant Fees Ban.
- In the same month, he also shared the news of the government’s new Housing Resolution Service, aimed at tackling landlords or councils who have not acted on requests for property repairs. He also celebrated the introduction of ‘tough new rules for electrical inspections in private rented properties’.
- In March 2019 Mr Pincher showed his support of Zoopla removing “no DSS” wording in rental property adverts.
- In May 2018, Pincher spoke about making renting fairer for tenants, in an article which appears to discuss the Tenant Fees Bill.
- In January 2016, Mr Pincher was amongst the majority of MP’s who voted to phase out secure tenancies for life, relating to council tenancies. This decision was made in order to give local authorities greater flexibility around tenancy management.
- Mr Pincher has also, consistently, voted in favour of high earners renting in council houses paying market rent.
In Mr Pincher’s statement on his appointment he spoke broadly about housing and the need to build more housing stock, with the infrastructure to support the communities who live there.
He did not make any specific reference to the Private Rental Sector at the time.
In his new role as Housing minister, Pincher will oversee the Bill which abolishes Section 21 no-fault evictions.
In a joint statement on his appointment, the chief executives of the NAEA Propertymark (National Association of Estate Agents) and ARLA Propertymark (Association of Residential Letting Agents), Mark Hayward and David Cox, aired their frustrations:
“We welcome Christopher Pincher as the new Housing Minister. Unfortunately, the lack of continuity in this post and the persistent changes means it’s near impossible for anyone in the role to make an impact.”
This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.