It’s difficult to be sympathetic with landlords. The word “landlord” in itself conjures negative connotations and makes one think of unscrupulous property owners who care little about their tenants. According to my local Estate Agent, the average two-bedroom flat for rent stays on the market for no longer than two weeks, whether furnished or unfurnished. At a time when getting on the property ladder has never been more difficult for first time buyers, landlords with property portfolios are experiencing unprecedented demand. So what are they moaning about?
Until recently, when a property would come on the market, you’d have first-time buyers, home movers and landlords fighting in the same space to purchase. Invariably, the landlord, who typically had much deeper pockets, would win. To rub further salt in the wound, the landlord would rent out the property and effectively get the tenant to deal with the mortgage, whilst benefitting from any capital growth in a booming property market. Mortgage interest, maintenance costs and repairs were all tax deductible business expenses. Letting was therefore a very attractive business, investment or retirement vehicle.
In 2015, recognising that residential purchasers had little or no chance fighting for properties against landlords, George Osborne announced sweeping tax changes that would make purchasing a property much less attractive for the landlord. He started with demanding a 3% stamp duty surcharge on second properties, meaning a landlord would have to pay £15,000 more than a first time buyer when on purchasing a property worth half a million. Furthermore, landlords would no longer be able to offset mortgage interest against their tax bill. Instead, they would be given a 20% tax credit meaning higher-rate and additional-rate taxpayers would pay considerably more tax – and in some cases pay tax where they made no profit.
Have these changes had the desired effect? Antony Lopez, financial adviser at Sterling & Law says, “In a sense, yes. We have noticed that the stampede for properties in London has cooled and properties new to the market are now hanging around a lot longer. Some buy to let investors are offloading their properties due to the new tax laws creating more supply in the market. This is good for first time buyers and home movers, as they now have more choice. Additionally, purchasing is much less stressful, as the days of competing with numerous other potential buyers over the same property are more or less over.”
Does this mean that first time buyers are finding it much easier to buy? “No,” continues Antony. “It has become much more difficult to get a mortgage since the credit crunch. To get the best mortgage deals, you’ll need a deposit of around 25%, which on a flat worth £500,000, equates to £125,000! Add £15,000 for stamp duty and a further £5,000 or so for costs and we are talking near enough £150,000 before you’ve even paid for a carpet! Who has that sort of money?” He certainly makes a good point. Although the market has slowed, property prices in London remain rock solid meaning ludicrous deposits are still required to get started.
“There is another problem.” Says Antony. “Fifteen years ago, if you told anyone you were renting, they would be horrified. Renting was viewed at best as a bad investment and at worst, throwing money down the toilet. Renting has now become so commonplace that there is no longer any stigma attached to it. Buyer apathy has set in and young people are no longer as desperate as they were a few years ago to get on the property ladder.”
Landlords are therefore a very important cog in the property market wheel. Perhaps it’s time to change our attitude and be nicer to them.
