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Method in the lawmakers’ madness

I’m not being rude but do you think that our government is stupid? Or are we missing something?

Adam Walker

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I’d be prepared to bet that you all think that you know the answer to this question, don’t you? After all, our current government certainly says – and does some pretty stupid things. Just look at the way that they have handled Brexit! You couldn’t make it up – and some would say the whole process has made us all a laughing stock, as far as mainland Europe is concerned.

What about lettings legislation

However, when it comes to recent changes in the laws that affect buy to let landlords and letting agents, I fear that there is method in the lawmakers’ apparent madness. The overriding objective of the recent legislation – affecting all UK buy to let investors and the lettings industry – has been to drive out the amateurs.

Over the last thirty years, hundreds of thousands of investors have jumped on the buy to let bandwagon and while some are highly successful, many of them have made a pretty bad job of it.

The Government wants professional landlords who have financial substance, expert knowledge and are in it for the long term.

Adam Walker image

Adam Walker

An investor who has bought a property (or a dozen properties) in the last five years in most areas of the United Kingdom will not have seen much increase in value in their property. If they bought it on a 75 per cent loan to value mortgage, they will not have earned much income either. Indeed, some of the changes to the way that tax relief is calculated may well mean that after they have paid mortgage interest, agents’ fees and maintenance costs, they are actually making a loss each month.

Knock on effects

Because they are making no profit from their investments, such landlords try to cut costs. They may well skimp on maintenance or delay repairs and other expenditure for as long as possible. Many of these landlords will also manage their own property in order to save on letting agents’ fees.

The result is a badly maintained and badly managed property which is a horrible place for the tenant to live and is also a useless non-productive investment for its owner. These are the sort of landlords that the government is trying to drive out of the market. Seen through this paradigm, all the changes in legislation start to make sense:

  • The change in mortgage tax relief on buy to let mortgages has made life much more difficult for landlords with large mortgages.
  • Buying investment properties through a limited company is more tax efficient for most investors – but the cost of running a limited company means that only landlords who own multiple properties go to the trouble of setting a company up
  • Increasingly strict lending criteria have forced landlords to put down larger deposits
  • Endless new compliance rules and savage fines for non-compliance have caused many single property landlords to sell up
  • The ban on tenant fees will in the medium term stop letting agents from offering a tenant find-only service
The bigger picture

The cumulative impact of all of these changes has made life harder and harder for amateur landlords who own just a single property and this is precisely what the government wanted to achieve. They want to see a much more professional industry where the people who own property have financial substance, expert knowledge and are in it for the long term. The single property amateur landlords will just find it harder and harder to survive.

The same legislative changes are having a similar impact on small letting agents. The agents who were hit hardest by the tenant fee ban were the agents who let most of their property on a let-only basis and made up for low fees to landlords by abusing the tenant fees. Many such agencies have already been forced to close for business or to merge with a larger competitor and the attitude of the government is “good riddance”.

The end result

As mere observers of the political process, what we see is the Minister for Housing who seems to be replaced every few weeks. However, behind the scenes are a team of very clever civil servants who absolutely understand the housing market and the consequences of their new policies. The result will be a much smaller number of landlords and letting agents and a much more professional and profitable buy to let industry.

Adam Walker is a business transfer agent and management consultant who has specialised in the property sector for more than 25 years. www.adamjwalker.co.uk

December 5, 2019

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