Property pundits are unlikely to be holding their breath over what the Budget might produce for the buy‑to‑let (BTL) sector on 8 March.
This is a government desperate for money (was it ever thus?) so there are unlikely to be any goodies contained within Chancellor Philip Hammond’s battered red case.
There is a real danger of government killing the goose that lays the golden eggs
On the other hand, recent Budgets have produced two major financial raids on buy‑to‑let, ie the ending of tax relief on mortgage interest and a 3 per cent premium on stamp duty on landlord purchases (the latter taken up enthusiastically by Holyrood) so the case might not contain any more nasties either. Thus it seems an opportune time to review government influence over the sector in recent years.
In retrospect, some of the legislation of which the sector was initially somewhat suspicious has actually had positive results and led to the enhancement of buy‑to‑let properties as “mainstream” consumer products.
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No reputable agent or landlord can now argue with compulsory safety checks on gas boiler systems and electrical items. Nor the introduction of HMO (houses of multiple occupancy) legislation which not only made multi-let flats safer but also (because of the cost of adjusting properties) effectively helped contain the number of “student properties” in some overwhelmingly residential areas.
Agents in Scotland have even managed to live with the ban on charging upfront fees to tenants as one consequence has been to “root out” underperforming businesses which already gave poor or mediocre service to tenants and landlords, and lacked the ability or wherewithal to adapt to change.
Unfortunately, Holyrood politicians are in danger of losing earlier Brownie points with their intention to end the longstanding and highly successful practice of minimum six-month leases and also to restricting the means by which landlords can regain possession of a property (ie by either selling it or using it as a “main home”). It is also being made more difficult for agents and landlords to evict tenants for anti-social behaviour.
The decision to end tax relief on mortgage interest was made by Westminster, this being a reserved matter, but there is no reason to believe it was not welcomed by the Scottish Government which, as stated earlier, was happy to follow the decision by the previous Chancellor, George Osborne, to put a 3 per cent levy on BTL purchases. However the increased regulatory and tax legislation north and south of the Border means there is a real danger of government killing the goose that lays the golden eggs.
In her time, Mrs Thatcher proved that by reducing taxation rates, tax income for government actually increased, yet this, like so many other things from that era, seems to have been cast aside. I have a feeling that Mr Osborne’s 3 per cent raid was motivated by a desire to be seen to be doing something about soaring London prices by creating a more level playing field among landlord and owner-occupier purchasers; the latter, it was believed, having been squeezed out by the former.
However, in the English provinces, as in Scotland, the problem for owner-occupiers, particularly buyers looking for a first purchase that is invariably a flat, is not so much high prices and lack of stock but the deposits required by mortgage lenders.
Consequently, the rental market is fulfilling a societal need by providing accommodation for people for whom owner-occupation is not an option, at least for the time being.
And this does not just apply to low-earners; many of our tenants are professional people, holding down well-paid and relatively secure jobs, for whom, nevertheless, finding circa £20,000 for a down payment on that first flat (plus legal and other ancillary fees) is just a step too far, a situation not helped by harder times for the ‘bank of mum and dad’ whose levels of capital and income have been hit by low interest rates, poor pension annuities and underperforming endowment policies.
So, less than a week before the next Budget, it seems timely to warn both our governments that squeezing BTL buyers may not only lead to less tax income but also to a shortage of comfortable and affordable rental accommodation that, up to now, has served as a lifeline for hopeful, but frustrated, first-time buyers.
• David Alexander is managing director of DJ Alexander