When Chancellor Jeremy Hunt gets to his feet on Wednesday to deliver his Autumn Statement, he should consider offering support to both tenants and landlords.
While rising rents caused by supply shortages have hit tenants hard – especially those who rely on the Local Housing Allowance – many landlords have in turn had to cope with increased interest charges on buy-to-let mortgages, which some claim have rendered their rental properties unviable.
There are tenants and landlords struggling in the Private Rented Sector (PRS) who require swift and specific measures from the Chancellor. The Local Housing Allowance has not been increased since April 2020. And last year, the Government confirmed that the current freeze on housing benefit payments would continue into 2023/4.
According to the Institute for Fiscal Studies, rents in the PRS have increased by more than a fifth since the freeze and, as at June 2023, on average only 5% of rents can be covered by the LHA.
Additionally, there is a tremendous shortage of homes to rent in the social housing sector. This has left thousands of families in England struggling to find an affordable property. These are people on the lowest incomes and who are the most vulnerable. Thanks to the LHA freeze the PRS has become too expensive, and on the social housing side, the cupboard is bare.
There are also serious implications for some tenants once the government is satisfied with the progress of reforms to the court system and Section 21 is abolished.
Low-income tenants who are evicted under Section 8 due to rent arrears will find it almost impossible to find another rental property in the private sector as only 16 per cent of landlords would be willing to rent to a tenant with a history of rent arrears according to the latest English Private Landlord Survey. As things stand, the only immediate alternative would be temporary accommodation, which is hugely expensive for local authorities.
It’s a question of where the Government wants to spend the money. Do they want to raise the LHA rate to a realistic level? It would make a significant difference and it is long overdue. Or will we see a future increase in the cost and volume of temporary accommodation?
One long-term way to bring down rents is to build more homes, but that must not lull the government into ignoring the short-term supply issues facing the sector.
While some landlords are retiring and selling their properties to fund it, others who continue as landlords are facing high mortgage costs, increased regulation and a heavy tax burden, which may put them in an untenable position.
Currently, all rental income made from a property is taxed – landlords can partially claim back mortgage interest costs, but only up to the basic tax rate of 20 per cent.
Many have called for the abolition of Section 24, but it seems unlikely that the Chancellor is going to consider it this time around – even though it creates an incentive for higher-rate tax-payer landlords to incorporate their properties as a way to claim mortgage costs as an expense and pay corporation tax at 25 per cent, rather than the 40 or 45 per cent personal tax rate on their rental income. As a result, some landlords are now selling their properties.
Another measure the Chancellor could introduce, to ensure as many PRS properties as possible remain in the sector, is to incentivise landlords that need to reduce their stock to sell to other PRS landlords.
To achieve this, the Chancellor could reduce Capital Gains Tax for landlords who sell their properties to other landlords who commit to keeping it in the PRS for a fixed number of years.
A measure like this would also stimulate the sales market to some degree, but the main advantage would be in retaining as many properties as possible in the rental market.
What we don’t want to see is an influx of owners shifting properties to holiday lets, second homes or keeping them empty for asset appreciation.
* Neil Cobbold, managing director of PayProp UK *
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Abolishing Section 24 would be a huge help with immediate effect.
Taper or indexation relief on CGT with a guarantee it won't be altered for at least 50 years would give people the confidence to enter the industry and invest long-term.
Charging standard SDLT on properties that are going to be let on standard ASTs would also help. Alternatively refund the surcharge after 5 years of income tax has been paid on the rental income.
All eco improvements need to be fully tax deductable in the year of installation.
The LHA is woefully inadequate. £200 to £500 a month below market rent seems to be fairly standard. In some cases the Council just pays a DHP as an ongoing payment as they know that's the cheapest option. Increasing LHA to the 30th percentile and ensuring it rises in line every year would make everyone's life easier. Would it actually cost any more than the current mish-mash of temporary housing, DHPs, hardship payments, cost of living payments, all the admin costs to administer the above, etc?
Social housing needs serious readjustment. The allocation is flawed, the pricing is seriously flawed, the maintenance is dire. The whole thing is just a mess. Firstly they need to increase the rent to at least LHA so they have half a chance of being able to afford to maintain it adequately. There is absolutely no excuse to charge any less. They could possibly look at means testing to determine rent on a sliding scale between LHA and market rent. Why should the general public subsidize high earning Social tenants?
In the lead up to 2016, the UK government decided to make it a long-term aim to decimate the PRS by making it unviable for many, with an all-out assault on profitability and liability. The main prongs were section 24, SDLT, wear and tear allowance, the threat of punitive fines for falling foul of ever-increasing regulation and demonising landlords as uncaring and motivated primarily by greed.
Since it is a political and ideologically driven policy, they are not going to lose face or change course even when the ship is well and truly sinking and there is outright rebellion by the populace. The only thing for landlords to do when under siege is to look to their options and do whatever is needed to survive. Sadly, there can be no room for squeamishness or conscience when faced with such an assault on our very purpose of providing a roof over other people's heads.
You couldn't obtain a guarantee that capital gains tax indexation would remain unaltered for 50 years because Parliament can't bind its successors. That is a principle of Parliament's legislative supremacy. A Government might be elected, for example, with a manifesto committment to abolish capital gains tax and they would have the right to subsequently enact legislation to that effect.
Well said Peter, the all out assault on Private landlords probably started with the licensing Scheme in 2006, followed by Shelter’s Deposits debacle in 2007 based on a pack of lies. Which meant I stopped talking Deposits that’s what I think of the scheme. I would prefer to loose the money & suffered the loss of ever increasing damage, only one more step left now stop taking rent, which is the same as taking it and been issued a Penalty of up to £30k, now also give the Tenants back 2 years Rent as compensation if they have made your property into dump why else would it be in bad repair surely they accepted the Condition of the Property when taking it, so how can they turn around and look for Compo’ stupid nonsense. now did someone say there was a housing Crisis I wonder why ?really. 2015 De-Regulation egged on by Shelter having failed with their Sarah Teathers Private Members Bill. Indexation & Taper Relief gone,
When you could serve S.21 messed about with. Council’s telling Tenants to stay put in breach of their Tenancy Agreements until landlord got a Court Order, making a rod for their own backs affording the Tenants to an automatic right to be housed by the Council’s in a Property they hadn’t got. Costing tax payers billions often in B & B’s or Hotels I think the current figure is £1.7b, well done & you are in Charge of us, you shouldn’t be in charge of a hen house.
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