Property expert Kate Faulkner reports on the latest budget news.
During September and October 2018 we have had all of the political party conferences and just now we have had the government’s latest Budget, so the question to ask is:
How will the latest political and Budget changes affect landlords and investors into the future?
The next election is planned for 5th May 2022 and, providing we do actually Brexit and aren’t forced into another election, the latest political conferences and Budget suggest landlords and investors can relax a little.
Although the Conservatives are (just) running the country, it doesn’t mean we can ignore what Labour are calling for. This is because the Labour Party poll better than the Conservatives when it comes to issues on housing. As a result, when Labour propose their own policies, the Conservatives typically have to react so they don’t lose support at the next election, particularly from tenants.
Latest policy recommendations landlords and investors should be aware of:
According to the Conservatives, “Everyone deserves a decent, affordable and secure place to call home”. But perhaps most importantly, their belief is “A Britain where Generation Rent can become Generation Own”.
However, the concentration on turning Generation Rent into an owning population isn’t as easy as I suspect the Conservatives would like to think, so it’s great to have a policy, but it doesn’t mean it will actually work.
I firmly believe that the idea of penalising landlord business models to reduce their investment in the property market by encouraging them to sell up or not purchase in the first place ignores a major problem: all the main forecasts suggest the number of tenants is likely to increase, not fall. So it’s OK to encourage more people to buy, but if that means there are fewer homes in the PRS with a rising number of tenants, people will be forced into in overcrowded homes or homelessness, especially in high priced areas where there isn’t enough social housing to go around.
The good news is for those landlords and investors who can stay in the market and ride out these tougher times, there are still ways to make money out of the property market, even with higher levels of taxation.
These policies include:
- Wanting to build up to 300,000 homes a year – of all tenures
This gives landlords and investors the opportunity to make money from taking larger properties and breaking them down into much needed smaller homes. This allows you to sell some, rent others and boost yields.
- Consulting on extending existing properties upwards, especially in the likes of London.
As a landlord or investor, this could enable you to make more money on an existing property or purchase a property you can add value to.
- New community creation such as Garden Cities and investment in infrastructure
Brand new developments can bring opportunities to make money from infrastructure changes such as new train lines and roads. For example, the investment in the Cambridge-Milton Keynes-Oxford Corridor and more than 5,000 new homes via the athletes’ village being built for the Commonwealth Games in Birmingham.
- Clamping down on rogue landlords and increased fines, including jail time
Although this may seem a downside to landlords, if the government and local councils can find a way to take the rogues who give landlords a bad name, then that would help take the pressure off the industry.
- Minimum standards, training and better redress for consumers
Landlords and investors typically work with agents, developers and property management companies, all of whom will have to be better trained and regulated into the future, meaning a much more professional sector, with better redress (for example the New Homes Ombudsman) if things go wrong.
It would also be easy to miss some other changes the government is making which could make life easier for landlords who own flats, including the changes to ‘leasehold’ ownership which are being reviewed by the Law Commission. These measures include making it easier for leaseholders to purchase the freehold and restrict ground rents on long leases to a ‘peppercorn’ rate (for some).
In addition there is work being carried out to improve the way we buy and sell homes, making investing in property easier for landlords into the future, with less likelihood of property sales or purchases falling through.
Many of these changes will be good news for savvy landlords and investors and mean in the next few years, investing and letting property should become easier, as long as you can overcome or find a way to mitigate the latest tax costs.
Does the Budget provide any more good news?
The latest Budget can only be described as a bit of ‘relief’ for landlords and investors. This is mainly because the only real adverse suggestion was the removal and reduction of ‘Lettings Relief’.
Changes to Private Residence Relief on Capital Gains Tax
This won’t affect everyone; it will only impact those who have rented out a property they formerly lived in and secondly it will be implemented from April 2020, so there is time to work out if you are adversely affected and act accordingly. The change is being applied to the relief on Capital Gains Tax for the length of time the property had been lived in. However, this will still be applied to those who rent to a live-in tenant and on the likes of Airbnb. To find out if this affects you, do speak to your local Belvoir office or property tax specialist.
Apart from this proposed change, most of the news from the Budget is positive:
Healthy economic forecast
For the property market to be successful – with rising prices, rents and demand – economic growth is essential. The current forecasts suggest the economy will grow at between 1.4% and 1.6% over the next few years. That typically means more jobs and higher ‘real’ wages, with regular pay currently growing at 3.1% and forecast to continue to grow in excess of inflation for the next five years.
This is great news for landlords in particular as it typically means rents can be increased in line with wage growth.
Increased housing opportunities
A wealth of policies were announced ranging from allowing local councils to borrow more to build council homes; more money for housing associations to increase the number of affordable homes; zero stamp duty for first-time buyers purchasing shared ownership properties and increased investment in infrastructure to drive more new homes and communities.
All of this additional activity helps to create opportunities for investors and, to some extent, take the pressure off the PRS, for example by making sure more vulnerable tenants can be housed in council and social homes rather than being forced into the private sector, and by allowing those who want to buy to purchase through schemes such as Help to Buy which is being extended (for first-time buyers) to 2023.
More money in tenant’s pockets
Having researched and monitored rents across the country for the last 10 years (see Belvoir’s Decade of Data), we know that rents can only rise when wages allow.
Positive changes such as raising the personal tax allowance in April 2019 and increasing the National Living Wage from £7.83 to £8.21 all help to increase the amount of money people have to spend. This allows landlords, where possible, to increase rents in line with wage growth, rather than keeping rents static, which means a loss of income over time, due to annual inflation increasing the cost of living.
Finally, there is more help for those being switched to Universal Credit, which should hopefully alleviate the pressure on tenants struggling to pay the rent although, in reality, it is unlikely to make a vast different to landlords in the short term.
Overall, if we can Brexit successfully and the economy continues to grow as forecast, landlords and investors who constantly review their property investment and portfolio, seeking advice from local property market experts such as Belvoir, finance and tax specialists, then the future of buy-to-let and being a landlord over the next few years could be looking that bit brighter.
Image credit; image from Unsplash.