Why does the Government have it in for Residential Landlords?

15th December, 2016, by David Hargreaves

In the UK, we have a chronic shortage of housing. Apparently we need 200,000 new houses a year but last year we built 189,650 new homes. Bear in mind though that 2015/16 was a good year – and 11% up on the previous year in terms of houses built.

The Government can’t afford to provide them and nor can local authorities so over the past 15 years or so, the private sector has stepped up to the plate to an extent whilst at the same time enabling Mr and Mrs Smith to take care of their long term future as the Government can’t afford that either and pension funds have performed abysmally. Indeed there are now 1.9 million private landlords in this country.

It sounds a match made in heaven or so you would think; the private sector helps solve the housing crisis and take care of its old age!

Perfect. Or so you would think but no, the Government seems to think all these ‘money grabbing private investors’ are getting rich quick, and are pushing up house prices. So they are trying to tax them in to submission by applying a 3% stamp duty surcharge on all purchasers – on average £5,000 in the East Midlands – and preventing landlords offsetting interest charges against income for tax purposes. And it’s working.

Our local authorities have decided to jump on the bandwagon by first of all introducing the need to obtain an HMO licence if your property has three bedrooms or more – costing a mere £910 for five years and now they are proposing that every let property should pay them £610.

And now the Government has announced letting agents won’t be able to charge admin fees or referencing fees. The result will be that these costs will be passed on to the landlord through higher lettings and management fees. Letting and managing agents are not making big money and with more and more red tape, these admin fees and referencing fees will have to be replaced somehow.

So Mr Private Landlord, who was previously earning a net yield after all costs of circa 3.5% – 4.0% will now as a result of increased acquisition costs, increased tax, increased letting and management fees and now licensing fees will be lucky to earn 2% to 3% for a significant amount of risk and hassle.

So where will they put their money? Certainly not the bank at 0.1% interest (if they are lucky). They will probably move into commercial investments where they get longer leases – five years as opposed to six months, stronger covenants, a rent we will see rents rise.

For those investors who remain, their increased costs will also be passed on to tenants in the form of increased rents as well – a double whammy!

None of this is rocket science. It is simple economics; restrict supply and the price goes up. Unfortunately for a few popular headlines, the Government and local authority are going to make that basic right of somewhere to live more difficult for those that they really should be helping.