Firm end to evictions ban

Landlords finally have an end date for evictions ban. What does Boris's 'Build, build, build' mean for buy to let? What will Rishi Sunak's road to Covid-19 recovery look like?;
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There is good news for landlords, as the government confirms that the evictions ban will end, on August 23rd.

Speaking in parliament on 1st July, Lord Greenhalgh, junior minister for the Ministry for Housing, Communities and Local Government, said that from 24th August:

“The courts will begin to process possession cases again”

Whilst those landlords enduring the wait for possessions cases to move forward may see this news as bittersweet, it does at least bring an end to the uncertainty of a further potential extension.

Various organisations have found that the majority of landlords have been doing what they can, to ease their tenants through the Covid-19 lockdown.

Many people, across the country, have been subject to reduced income or redundancy, because of Covid-19.

Where an otherwise untroubled landlord-tenant relationship had been enjoyed, there was every reason to engage with one another and navigate the situation, if possible.

Ensuring that a tenant can maintain their tenancy and get back on their feet financially, is clearly of benefit to all, where possible.

However, when the evictions ban hit it encompassed cases already in the throes of being processed.

This meant that many landlords were left in limbo, where the reason for initiating an eviction did not relate to the impact of the pandemic.

Where the wrong-doing was at the hands of the tenant, the landlord has had to take the hit.

In this scenario, the tenant has been able to reside in the property, aware that an eviction process is waiting to be resumed; which has all sorts of potential implications for the landlord, beyond the financial loss.

Ben Beadle, chief executive of the National Residential Landlords Association (NRLA) acknowledged this issue in his comments on the matter:

“Extending the evictions ban is not without victims. It leaves landlords powerless to tackle the kind of behaviour that causes untold suffering and hardship for many communities and tenants alike.”

Mr Beadle went on to address the issue of the backlog that the courts will now be facing:

“These cases must be given top priority by the courts and their processes enhanced to avoid further delay once they start to deal with possession cases.”

Evictions resulting from domestic abuse cases

One critical reason an eviction case may arise, is instances of domestic abuse.

Commonly the recourse of the landlord, to support the victim, is to issue an eviction notice to end the existing agreement for both parties, then re-issue a tenancy to the victim individually.

It has been widely reported in the press that domestic abuse cases have risen under lockdown. Data from the University of Bristol shows that, of all housing tenures, with 38% the private rental sector sees the greatest proportion of cases.

This is one of the reasons the resumption of evictions is so important, alongside other matters such as antisocial behaviour and financial loss to landlords through unpaid rent.

House being builtWhat does Boris’ ‘build, build, build’ mean for landlords?

The Conservative government made two contradictory promises, pre-pandemic and prior to the general election.

The first was to build a million homes in the next five years, which would result in an average of 200,000 per year.

The second was try to hit “our target of 300,000 houses built a year by the mid-2020s”.

The two clearly conflict, and the former promise did not exceed rate of housebuilding, which at the time sat at 213,660 new homes a year.

These promises were also made against a backdrop of various political parties failing to build adequate housing, over the last couple of decades.

The number of completed dwellings had followed a declining trend for 5 decades from 1960, only picking back up from 2014:

House building by tenure 1960 - 2019

In the Prime ministers latest “Build, build, build” press release, he speaks of making ‘the most radical reforms to our planning system since the Second World War.’

The impending changes affect England, as housing has been devolved to Scotland, Wales and Northern Ireland.

There are two strands to the strategy. One focuses on making it easier to change the use of commercial premises, the second addresses home building.

Plans for commercial premises

Mr Johnson intends to make it easier to a range of commercial premises to change from commercial to residential use, without the need for a planning application or local authority approval.

These measures will not apply to:

  • Pubs
  • Libraries
  • Village shops
  • Other community-centric building types

Rebuilds and upward extensions

In future, where builders wish to demolish vacant premises (commercial or residential) to rebuild residential premises, it will be easier to do so, without the need for a normal planning application.

Where property owners want to extend premises they own upwards, this will be fast tracked to approval. Neighbour’s will still be consulted.

These changes will come into practice from September 2020, when changes in planning law will be made.

Home building

The Prime minister has also outlined plans for home building. These include:

  • Releasing public sector land for residential housing
  • £12bn investment in affordable housing (owned and rented) for up to 180,000 homes over 8 years (equates to up to 22,500 per year). This includes 1,500 ‘first homes’ with 30% discount for first time buyers.
  • £400m from the Brownfield Land Fund to support around 24,000 homes in West Midlands, Greater Manchester, West Yorkshire, Liverpool, Sheffield and North of Tyne and Tees Valley
  • £450m to be given to smaller developers to support 7,200 new homes

Housing supply and demand now to 2039

In 2017, the National Audit Office produced a report “Housing in England: overview”. The report found that the number of new households that would form yearly between 2011 and 2021, was projected to be 227,000 on average.

Clearly, these households need somewhere to live, albeit more than one household can reside in one property.

However, the report also highlighted that, in the ten years up to 2017, there were only 166,000 homes built in England – leaving a considerable void between supply and demand.

The Office for National Statistics projects that the number of households will rise by 210,000 on average per year from 2014 to 2039.

What does the future hold for landlords?

In the last ten years, the average number of dwellings built, across all tenures, averaged at just over 135,000. 2019 did see this number increase to the highest it has been since 1989, with 178,800 dwellings completed.

If we take the Conservative’s highest target, of 300,000 dwellings per year by the mid-2020’s, this is almost 68% growth on the 2019 figure and 122% growth on the average over the last ten years.

In short, a massive increase in volume and a huge target to hit.

Experience has shown that in reality, successive governments have struggled to hit housing targets, so what does this mean for landlords?

Clearly, the statistics show that demand for housing in England is significant and is not set to change for the couple of decades. By contrast, the shortfall in housing stock elevates house prices.

Then bring average earnings into the equation. In 2019, the median weekly full time earnings in the UK was £585. A decade earlier, it was £597.

Without house prices coming down far enough, or salaries increasing adequately, the ability to invest in property is greatly reduced.

Arguably, the requirement for housing from within the private rental sector will go from strength to strength.

ParliamentRishi’s road to recovery

On Wednesday 8th July, Chancellor of the Exchequer, Rishi Sunak will deliver his ‘fiscal plan’ for the UK economy. The impact of the Covid-19 pandemic is clearly the defining factor shaping the plan, so the big question is; what will Sunak offer as a recovery package?

The scale of the announcement seems to have altered, from ‘emergency budget’ to ‘economic update’. It has been suggested this may signal a scaling-back of plans, leaving the autumn budget for the delivery of more weighty changes.

Employment

Economic advisors are reported to have pressed the government to focus on jobs.

It is feared that, whilst initially a very positive support to many, the Furlough scheme has pushed unemployment down the track to October, when the scheme ends.

To help those put out of work by Covid-19 related redundancies, the government is expected to double the number of work coaches at the Jobcentre to 27,000.

There are suspected to be two strands to helping young people find employment. The first in the form of a £32 million investment into the National Careers Service and, the second, a £111 million in a scheme to encourage businesses to take on trainees.

The latter would result in businesses in England receiving £1,000 per trainee, aged 18-24 years-old, taken on.

Why such focus on the young? HM Treasury says it has evidence to show that under-25’s are 2.5 times more likely than any other age group to work in a sector that has shut down as a result of the Coronavirus.

Tax on wealth

There has been much speculation and calls for a tax on the wealthy, to fund the UK’s economic recovery.

The results of a YouGov survey found that 61% of the population supported a tax on those with assets over £750,000.

Anneliese Dodds, shadow chancellor for the Labour party, said,

“It is my view that if we do need to see an increased tax take we shouldn’t see it coming from those low and middle income people.

“Instead we should have a focus on the very best off people.”

Sir Gus O’Donnell, a crossbench member of the House of Lords has also shown his support for such a move, highlighting that the public preference was for tax increases, rather than spending reductions.

Speaking on the subject, he encouraged the Conservative government to break down barriers between supporters of their party and that of Labour with a tax on the wealthy, given the impact of Covid-19 has been greater on young people, women and those on low incomes.

VAT cuts

Countries within Europe and the around the world are considering changes to VAT.

Germany has already announced a temporary cut in the tax, Ireland is looking into VAT cuts for the tourism industry and Sweden is giving VAT relief on bad debts over 90 days old.

Alistair Darling, Labour’s chancellor during the 2007-08 financial crisis, has called on the government reduce the rate of VAT, as he did in 2008. At that time, VAT stood at 17.5% and was reduced to 15% from December 2008 for 13 months.

However, writing for Taxjournal.com, Tom Gilliver of multinational law firm Slaughter and May, reflected on the real implications of this tactic:

“Subsequent studies prompted critics to observe that, while the cut led to a small increase in spending, that increase was temporary and came at significant cost to the public purse. Arguably, therefore, the policy did not offer good value for money.”

Source: VAT cuts as a fiscal response to Covid-19, Taxjournal.com

Ending the triple-lock guarantee on state pensions

From 2010, the UK state pension has been protected by three measures, to guarantee it increases each year, taking the greater of the three measures as the amount by which it would increase.

These are:

  1. Average earnings
  2. Prices, according to the Consumer Prices Index
  3. 2.5%

A reduction in the protections around the state pension, given it is already a small sum of money, would not be a popular choice.

However, with a significant majority and the next general election not scheduled until May 2024, some say this gives the government time to make a change and recover from the backlash.

Pension tax relief

Reducing tax relief on pensions is commonly up for debate, as a money-saving solution for government.

Like any reduction to the state pension triple-lock, it is another very unpopular option. As such, it has historically been rejected in favour of other solutions. However, those within the industry have admitted that Covid-19 has had such an unprecedented impact, now may be crunch time.

Head of savings and investments at Aviva, Alistair McQueen, said the significance of the economic impact of Covid-19 could “finally cause the government to act” on pension tax relief.

Stamp duty ‘holiday’

Boris Johnson has a history in desiring change in Stamp Duty Land Tax (SDLT) and Rishi Sunak is thought to be considering this as an option for galvanising economic recovery.

Landlords have long hoped the 3% levy on second homes and investment property would be lifted, in recognition of the contribution the private rental sector has in housing the nation.

However, speculation around a change in stamp duty has thus far been described as a tool to help first-time buyers get on the property ladder.

Stamp duty slashed for landlords

Rishi Sunak has announced that the first £500,000 of property sales in England and Northern Ireland, will not be subject to stamp duty land tax and only the 3% surcharge will apply for landlords and second homes, on this sum.

This means that residential purchases receive a greater benefit, but it still represents a huge cost saving for property investors.

The stamp duty holiday will be available from 8th July 2020 to 31st March 2021, the deal must complete prior to the March date to qualify.

For a property worth £170,000 the saving would be £900, or a £15,000 on a £500,000 property.

This is fantastic news for landlords who have been subject to increasing financial pressures in recent years and will hopefully encourage those who have exited the industry back.

If you have a case currently going through, which has exchanged but not completed, you will be eligible to benefit from this change in stamp duty.

If your case completed prior to yesterday's date, you will not be eligible to receive the benefit of this change.

Limited company property purchases are currently believed to be similarly eligible for the same benefit as other buy to let purchases. Those purchasing through a limited company are advised to check this with a tax professional.

Calculate the new stamp duty rate here:

Calculate stamp duty as from 8th July 2020

More updates on the Chancellors announcement will follow.

Check with a property tax specialist or your solicitor to understand how this affects you. Commercial Trust advisors cannot give tax advice.

If you want to purchase rental property as a result of this announcement, we can help you find a buy to let mortgage.

Please call us on the number at the top of the page.

This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.