More than half of residential letting agents in the UK think that upcoming government reforms to the buy-to-let sector will push up rents.
The latest report from the Association of Residential Letting Agents (ARLA) arrives at a time when the UK’s private rented sector is under growing pressure from authorities. Announced last year, two new measures will soon be introduced as part of a crackdown by Chancellor George Osborne on buy-to-let. From April this year, a stamp duty surcharge of 3 per cent will apply to all second home purchases, including those for buy-to-let purposes. From April next year, mortgage tax relief will also be changed for smaller landlords, leaving many to pay tax on their mortgage interest as well as their profits – thereby leaving some without any profits at all.
The stamp duty hike alone is already having a visible impact upon the sector, as investors rush to complete any new buy-to-let purchases before the April deadline. Nearly half (47 per cent) of ARLA agents reported that they have seen an uplift in interest from buyers looking to invest in BTL properties before 1st April – a rise from 24 per cent from last month.
David Cox, ARLA managing director, comments: “A few weeks into the new-year and the April deadline for the stamp duty surcharge is looming and interest from buyers looking to invest in buy-to-let properties and beat the deadline is ramping up. The final details of the new tax will be revealed at the Budget in March but we are not expecting to see the Government back down on this policy.”
A growing number of landlords, though, are hopeful that the government might back down on its other policy. On Boxing Day last year, Steve Bolton and Chris Cooper launched a legal campaign – spearheaded by Cherie Booth CBE, QC, (the professional name of Cherie Blair) and Conor Quigley QC – for a judicial review of the 2017 mortgage tax relief reduction.
Basing their case on both human rights and state aid law, the campaign argues that the change would be unlawful, against the fundamental business principle that income less costs equals profit, and unfair, as it penalises smaller landlords but not larger, institutional buy-to-let investors.
After a successful crowd-funding campaign, the team officially filed their judicial review application on 17th February, with the government expected to respond with an Acknowledgement of Service before a deadline of 16th March. This may contest the application, contest the claim itself, or concede the case altogether. Depending on the response, a hearing could be a matter of weeks away or a matter of months.
“We are hoping for a positive result but are mindful both that judicial review proceedings are inherently difficult and also that, even if we win, the Government might introduce changes or new measures that are more defensible legally but still unattractive and problematic for hard-working private landlords,” Bolton and Cooper said in a recent statement to their campaign backers.
In the meantime, the number of rental homes in the UK has fallen 5 per cent in January 2016 compared to December 2015, taking supply levels to the lowest since records began a year ago. Demand for accommodation, on the other hand, rose slightly. As a result, the number of agents reporting rent hikes for tenants increased in January, with three in 10 reporting an increase in rent – the highest number since September 2015.
“Supply of housing continues to be a problem and tenants bear the brunt of this with more people competing for properties at higher prices,” comments Cox. “The majority of tenants find that it is impossible to save very much at the end of the month to put towards buying their own home. Our recent Cost of Renting report found that a fifth of those renting in the UK do not expect to ever be able to afford to buy a home, and unless we act soon to build more properties, this number will only get higher.”
Nearly two-thirds (63 per cent) of ARLA members think the Chancellor’s stamp duty reforms for buy-to-let properties will push landlords out of the market, which will, in turn, cause supply to drop further. Almost six in 10, meanwhile, believe the reforms will push up rent costs.
“The findings from our members echo our concerns that efforts to penalise buy-to-let landlords will ultimately impact those entering and currently in the rental market, as by increasing rents landlords will seek to recoup their costs,” warns Cox. “Rent costs are already rising exponentially, and tenants are feeling the strain of a crowded marketplace. We just need more houses; it’s as simple as that.”
For more information on the campaign against Clause 24, visit www.facebook.com/clause24Google+