Oxford Landlords under attack!

Morning all,

I hope you are well.

And so it goes on....................

The government's attack on landlords is unlikely to end anytime soon despite widespread criticisms.  Details are now emerging to confirm how the new policy on interest rate relief will be implemented.

Landlords are now being urged to pay close attention to the new tax rules for residential property from April 2017.  Whilst the additional 3% SDLT has created anxiety amongst buy-to-let investors, the restriction to interest relief is likely to have greater longer-term effect on after tax returns."

Yesterday, HMRC finally issued their guidance on these changes, which include some worked examples to illustrate how landlords will be affected.

All residential landlords with finance costs will be affected, but only some will pay more tax.  

It is inaccurate for HMRC to say 'only some will pay more tax'.  When the announcement was made at the Summer Budget, the measure was described as restricting interest relief at the 20% basic rate, however the actual mechanism of how the restriction works has wider impact. Currently, buy-to-let landlords can deduct all their interest cost to calculate rental profits.  When the new measure takes effect, the interest cost will be completely disallowed in computing rental profits and instead a tax credit equal to 20% of the interest will be given against the person's income tax liability, meaning that the individual will have higher overall taxable income.  For some this could push an individual into a higher rate of income tax and start to reduce their personal allowance (if their income now starts to exceed £100,000), for others it could affect their entitlement to child benefit and restrict the amount on which they can claim tax relief for pensions.

But, the landlords are not to blame

The current attack on landlords fails to recognise that successive governments have failed to tackle supply Vs demand, and renting has become a lifestyle for more and more people (you may recall my previous post touching on this subject) In 2007, home ownership in the 30-34yr old demographic dropped to 65.8pc and renting rose to 18.7pc.  In the latest figures, for 2014, home ownership had dropped to 47.2pc and renting had risen to 33.4pc. Some thirty-somethings may blame landlords for owning 'their' houses, but the fact is that the properties they would ordinarily be buying are the council houses that were sold off for huge discounts during Thatcher's ill-fated Right-to-Buy scheme - and not replaced.

The selling of council housing in the 80s artificially grew home ownership but, as these people have become older, the following generations have not had the same opportunity to buy those council houses, purely because the older generation are still living in them. Thus, in the 90s, Noughties and going into the prestn we have seen increasingly mature adults being funneled into a growing private rented sector so unless local councils start building council houses by the acre (and hundreds more acres!), private renting is in the UK is destined to grow, and grow, and grow.  It seems a perverse response by Government to punish landlords and discourage their continued investment in private rented provision.

That said, buy to let lending in Oxford still looks set to fall......

Richard Sharp, an external member of the Bank of England's financial policy committee, told MPs on the Treasury select committee last week that buy-to-let lending would probably "cool significantly" in the coming months. Something we also anticipated would happen in March this year.  Mr Sharp said that he suspects the banks will want to see what regime we're in terms of house prices before they go back to aggressive lending.

Under new recommendations from the financial policy committee, prospective landlords will have to ensure their rental income offers greater cover on the costs of their borrowing. For example Barclays, TSB and Nationwide have already implemented a proposal for rental income to provide 145% mortgage cover vs the conventional 130%.

Buy-to-let landlords could be forced to stump up more than 60% deposits in some locations and there are signs that the number of new buy-to-let acquisitions has fallen sharply over the past couple of months following the introduction of the stamp duty surcharge on second homes from April, but as you all may recall I see this downturn as a temporary measure and remain confident in the knowledge that the worth of private landlords will become even more apparent in the next year whilst the demand for rented accommodating in Oxford remains so high whilst not tackling the real issue of supplying more houses.

Have a great weekend folks.