Straight talking

Marc Da Silva asks the Managing Director of ARLA about the new three per cent SDLT surcharge for buy-to-let and second homes and tax relief change for landlords.

Stamp Duty imageDavid CoxWhat impact has the rush to purchase buy-to-let (BTL) properties before a stamp duty hike on 1st April had on the market?
Our last monthly survey showed that landlords are trying to complete on property purchases before the deadline. The changes will certainly have an impact on the market but I doubt that it will have a lasting effect. The market will adjust; probably through rent increases.

The Government has already allocated the £880m it will raise from investors from 2020.

Will the increased tax bill result in fewer properties available to let and subsequently higher rents?
In the short term, we are likely to see fewer new buy-to-let properties come onto the market. This will likely result in an increase in rents as the ever increasing demand for properties from tenants will meet a stagnating supply in availability. When the supply side readjusts, rents are unlikely to go down.

How concerned are letting agents about the stamp duty surcharge on BTL and second home purchases?
Agents are worried about a drop in instructions as fewer newly purchased properties come onto the market from April. However, we do have to remember that the stamp duty changes will not affect the existing private rental stock.

Private investors are being penalised by this, what will be the impact for tenants?
The impact for tenants will be an increase in rents and, potentially, a decrease in property conditions as, if landlords are having to pay extra tax, that is money that will likely come out of budgets set aside for renovations and refurbishments.

Indeed, these moves go against the Government’s aim of greater homeownership. The changes will mean that tenants will end up paying more in rent and therefore unable to save as much from their incomes. As house prices increase and the amount tenants can regularly save decreases, these changes with widen the affordability gap, putting the dream of homeownership further out of reach.

The Chancellor’s decision to cut tax incentives, like Wear and Tear and Capital Gains Tax, makes buy-to-let look less attractive, but with average BTL returns still beating other mainstream investments, does the sector still offer room for growth?
The changes announced by the Chancellor are likely to cause a short-term blip in the market. However, the sector will recover.

House price growth means that capital returns are still strong and despite the housing crisis of the last decade, bricks and mortar will probably always be seen as a safe investment. In the end, the losers will be the tenants who have to cover their landlord’s increased tax costs through their rent.

Given the potential damaging, knock-on effect on renters, do you think that there will be a sharp rise in the number of PRS tenants in severe arrears?
I think that there might be a small knock-on effect for some existing tenants when it comes to renewing their existing tenancies or on a periodic tenancy, but not for many new tenancies as rental applicants will be stressed test.

What happens when rents become unaffordable for private tenants?
Rents in every area naturally have a ceiling price and that is ultimately what tenants can afford to pay. But what we have now is a massive shortage of supply, and so those people who can no longer afford to live in their existing property or region will simply have to move to another area.

What would you like to see the Government do to support the Private Rented Sector?
There are a number of things the Government can do to improve the private rented sector. Firstly, we would like to see the Government impose more appropriate regulation on the lettings industry; such as a scheme akin to the London Rental Standard in order to create a level playing field across the residential property industry.

We also want the Government to improve enforcement of housing offences and increase fines against rogue landlords so that enforcement acts as a real deterrent to poor and illegal practice rather than cost of doing business.

Finally, the Government really should amend the tax system so that landlords are treated as businesses for tax purposes.

Is a Government U-turn likely on the buy-to-let onslaught any time soon?
Having had discussions with the Treasury, I can honestly say that I would be very surprised if the Government was to perform a U-turn. It has already allocated the money it will raise from investors to the tune of around £880 million a year from 2020. There may be a few minor amendments, but ultimately landlords are being made to pay more to cover the increase in the housing budget.

What's your opinion?

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