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Vanishing Properties

Friday January 5, 2018

Nobody looks forward to the financial year end and doing their tax return. Even accountants who enjoy a seasonal boost in earnings just know a client is going to walk in a few days before the 31st January deadline with two bulging bin liners and announce “I’ve brought last year’s bills”. But this year promises to be interesting for the rental sector as tax changes bite hard on landlords.

To make matters worse a recent survey of landlords by online forum Property Tribes indicated that 60% of private landlords have made no preparation for changes to tax regulations. Gone is the ‘wear and tear’ allowance with mortgage tax relief set to drop by 25% this year and vanish entirely by 2020. As a result, many landlords will be pushed into the 40% tax bracket which spells good news for HMRC but bad news for tenants.

Landlords faced with a mounting tax bill and increased legislation face a stark choice. Sell up and quit the sector or increase rent. Neither option plays into Government policy of freeing up rental properties for first time buyers. Increased rent makes it harder for tenants to save money for their deposit. And a four bed semi which is fine for four young professionals sharing will be way above the budget for the average first time buyer.

As is so often the case, well meaning legislation will have the opposite effect to that intended, resulting in a shrinking rental sector with escalating rents. A recent report from National Homemover Audit indicates a 25% drop in properties bought to let. It is suggested that this is due to increased stamp duty and punitive tax regulation. Combine this with the decline in social housing and we could be headed for the perfect storm.

And as ever when the rental sector is squeezed the people who suffer most are those who can least afford it – people on low or fixed income. Already some industry pundits are predicting a sharp increase in homelessness due to a decline in available rental properties and increasing rent in those that remain.

Like any other business, landlords accept that tax is due on their profits. But problems arise when that tax makes their business model unviable leading them to leave the market or hike rents. These options are not good news for the person at the sharp end – the poor tenant.

The answer has to be consultation by Government departments with a thorough impact analysis undertaken before making legislative changes. Property sector professionals have been predicting this perfect storm for years now. These predictions have fallen on deaf ears as top-down legislation continues to make life more difficult for the landlord.

I was never much of a fan of Ronald Regan but a quote of his springs to mind here. “Governments first duty is to protect the people, not to run their lives”. Although his line from the film Kings Row which became the title of his autobiography “Where’s the rest of me?” could well apply to the private rental sector in 2018. Only time will tell.

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