In light of tougher legislation on landlords, punitive taxes and falling house prices in london, Money Tips looks at whether property is still a good investment ?
First,
we had the George Osbourne 2015 finance act phsing out tax relief on buy-to-let
mortgages. Tax relief will be gone by next year as will many property owners
and landlords as they start to pay more tax and even struggle to show a return
on their investment. This is a travesty and goes against all principles of
business lending.
we had the George Osbourne 2015 finance act phsing out tax relief on buy-to-let
mortgages. Tax relief will be gone by next year as will many property owners
and landlords as they start to pay more tax and even struggle to show a return
on their investment. This is a travesty and goes against all principles of
business lending.
The
then Chancellor George Osbourne also removed wear and tear allowance, which
will cost small landlords dearly.
then Chancellor George Osbourne also removed wear and tear allowance, which
will cost small landlords dearly.
If
that wasn’t enough, the government are now proposing new rules to do away with
Section 21 notices, which enables landlords to legally regain possession of their
property without having to give a reason or find fault.
that wasn’t enough, the government are now proposing new rules to do away with
Section 21 notices, which enables landlords to legally regain possession of their
property without having to give a reason or find fault.
Many
property owners have already sold up or reduced the size of their portfolio in
order to cut borrowing. Property prices in many parts of the country have
dropped for a number of reasons, including of course Brexit.
property owners have already sold up or reduced the size of their portfolio in
order to cut borrowing. Property prices in many parts of the country have
dropped for a number of reasons, including of course Brexit.
Some
see this as an opportunity to buy more property as so-called amateur landlords
run for the hills.
see this as an opportunity to buy more property as so-called amateur landlords
run for the hills.
Others
worry that long term open-ended tenancies may be the beginning of the end for
the buy to let business as we know it. The banks will certainly be concerned
about gaining possession of their security in the event of a default on the
mortgage.
worry that long term open-ended tenancies may be the beginning of the end for
the buy to let business as we know it. The banks will certainly be concerned
about gaining possession of their security in the event of a default on the
mortgage.
The
BBC and media have been all over the story citing cases of victims of
unscrupulous landlords who apparently evicted them at short notice because they
made a complaint about a repair job.
BBC and media have been all over the story citing cases of victims of
unscrupulous landlords who apparently evicted them at short notice because they
made a complaint about a repair job.
We
usually only hear one side of these stories, which surprise me for two reasons.
usually only hear one side of these stories, which surprise me for two reasons.
One,
most landlords would want to maintain the property in good order and any that do
not are shooting themselves in the foot and giving the vast majority of good
landlords a bad name.
most landlords would want to maintain the property in good order and any that do
not are shooting themselves in the foot and giving the vast majority of good
landlords a bad name.
Secondly,
no landlord wants to evict a good tenant who is paying rent knowing that they will
have a void and then have to pay an agent to get another tenant.
no landlord wants to evict a good tenant who is paying rent knowing that they will
have a void and then have to pay an agent to get another tenant.
So
what do I think of this?
what do I think of this?
Housing
Crisis
Crisis
These
measures will not solve the housing crisis. If anything, it will make it worse
as more landlords pull out of the market to avoid open-ended long-term
tenancies. If this happens, rents will go up based on the simple economic laws
of supply and demand.
measures will not solve the housing crisis. If anything, it will make it worse
as more landlords pull out of the market to avoid open-ended long-term
tenancies. If this happens, rents will go up based on the simple economic laws
of supply and demand.
Long
Term Secured Tenancies
Term Secured Tenancies
Private
landlords were never meant to fill the gap in the market for long-term
tenancies. Buy-to-let mortgages do not allow such tenancy agreements under the
terms of a typical mortgage. Secured tenancies were traditionally was provided
by council housing, which have not been built in any great quantity in the
London area since the 1970s. Despite government encouragement and cheap
borrowing, councils are often reluctant to build more council houses as they
fear that they will lose them further down the road and the right to buy
scheme. Many have even sold of housing stock to huge housing associations.
landlords were never meant to fill the gap in the market for long-term
tenancies. Buy-to-let mortgages do not allow such tenancy agreements under the
terms of a typical mortgage. Secured tenancies were traditionally was provided
by council housing, which have not been built in any great quantity in the
London area since the 1970s. Despite government encouragement and cheap
borrowing, councils are often reluctant to build more council houses as they
fear that they will lose them further down the road and the right to buy
scheme. Many have even sold of housing stock to huge housing associations.
The
government and local authorities must build affordable rental social housing as
a matter of urgency. The current scheme of asking developers to give a percentage
of the development over to affordable housing is just not working or providing
enough stock. Frankly, in the south-east affordable housing is just not
affordable. I have seen developers who cannot offload affordable housing even
on shared ownership schemes.
government and local authorities must build affordable rental social housing as
a matter of urgency. The current scheme of asking developers to give a percentage
of the development over to affordable housing is just not working or providing
enough stock. Frankly, in the south-east affordable housing is just not
affordable. I have seen developers who cannot offload affordable housing even
on shared ownership schemes.
Has
Right-to-Buy Passed its Sell-by Date?
Right-to-Buy Passed its Sell-by Date?
The
government also needs to restrict right to buy in order to keep housing stock
within the social rented sector and remove the excuse local authorities use to
sit on their hands whilst spending millions housing people in expensive
temporary accommodation.
government also needs to restrict right to buy in order to keep housing stock
within the social rented sector and remove the excuse local authorities use to
sit on their hands whilst spending millions housing people in expensive
temporary accommodation.
The
right-to-buy was a revolutionary flagship policy under Margaret Thatcher‘s
Conservative government in the late 1970’s and 1980’s. It did a lot to help social
mobility and allow people get on the property ladder. The problem is that the
money from the sale of the council houses was not reinvested into building new
stock.
right-to-buy was a revolutionary flagship policy under Margaret Thatcher‘s
Conservative government in the late 1970’s and 1980’s. It did a lot to help social
mobility and allow people get on the property ladder. The problem is that the
money from the sale of the council houses was not reinvested into building new
stock.
Underlying
Shortage of Housing in the UK
Shortage of Housing in the UK
There
is still a massive shortage of housing in England, as the population has risen
sharply in recent years due to immigration and people living longer. Divorce
also increased the need for smaller rental units such as studios in one-bedroom
apartments. Net migration, the difference between people coming into the
country and people leaving the country, has been running at around half a
million people each year for years. A small city the size of Bristol would have
to be built every year to just to cope with the number of new arrivals alone,
according to organisations like Migration Watch. As this is unlikely to happen
- as far as I know there is no plans to build another Milton Keynes or Basildon
- there will be a strong demand for property for the foreseeable future.
is still a massive shortage of housing in England, as the population has risen
sharply in recent years due to immigration and people living longer. Divorce
also increased the need for smaller rental units such as studios in one-bedroom
apartments. Net migration, the difference between people coming into the
country and people leaving the country, has been running at around half a
million people each year for years. A small city the size of Bristol would have
to be built every year to just to cope with the number of new arrivals alone,
according to organisations like Migration Watch. As this is unlikely to happen
- as far as I know there is no plans to build another Milton Keynes or Basildon
- there will be a strong demand for property for the foreseeable future.
Even
if there are fluctuations in the market, the fundamentals and underlying demand
will still remain. The U.K.’s population is set to hit 60 million within the
next decade and they all will need somewhere to live.
if there are fluctuations in the market, the fundamentals and underlying demand
will still remain. The U.K.’s population is set to hit 60 million within the
next decade and they all will need somewhere to live.
As
for this latest announcement, we don’t know exactly how the new rules will play
out or when they will be implemented. We do know that the government do not
want to go back to the bad old days of protected tenancies where a landlord
could never regain possession of their property or increase the controlled rent.
Until a few years ago, there were thousands of these properties with sitting
tenants dating back to the 60’s and 70’s. Owners would sell off the properties
at huge discounts at auction. Tenants were offered thousands of pounds in
bribes to vacate. A good friend of mine used to buy these properties in London
and then negotiate with the tenant to leave with a nice cash sum! They made a
fortune. If we return to this situation, the supply of private rented
accommodation will dry up.
for this latest announcement, we don’t know exactly how the new rules will play
out or when they will be implemented. We do know that the government do not
want to go back to the bad old days of protected tenancies where a landlord
could never regain possession of their property or increase the controlled rent.
Until a few years ago, there were thousands of these properties with sitting
tenants dating back to the 60’s and 70’s. Owners would sell off the properties
at huge discounts at auction. Tenants were offered thousands of pounds in
bribes to vacate. A good friend of mine used to buy these properties in London
and then negotiate with the tenant to leave with a nice cash sum! They made a
fortune. If we return to this situation, the supply of private rented
accommodation will dry up.
Like
it or not, the government needs private landlords as there is simply not enough
social housing provided by councils and housing associations. Some corporate
landlords are coming into the market but they are catering for the luxury end,
such as in the city centre studios and co-living for young professionals.
it or not, the government needs private landlords as there is simply not enough
social housing provided by councils and housing associations. Some corporate
landlords are coming into the market but they are catering for the luxury end,
such as in the city centre studios and co-living for young professionals.
So
for all of the above reasons, I think there will be a demand for private rented
accommodation even with anti-landlord legislation. Landlords are small business
people and small business people are resilient to legislation changes and
government red tape such as licensing (another issue for the sector to cope
with). They will survive and adapt. Like Darwin said, it’s not the strongest
species that survive, but the most adaptable.
for all of the above reasons, I think there will be a demand for private rented
accommodation even with anti-landlord legislation. Landlords are small business
people and small business people are resilient to legislation changes and
government red tape such as licensing (another issue for the sector to cope
with). They will survive and adapt. Like Darwin said, it’s not the strongest
species that survive, but the most adaptable.
Property
is a long-term investment and there will always be challenges.
is a long-term investment and there will always be challenges.
Landlords
and investors need to keep abreast of new legislation by attending courses and
seminars run by reputable organisations.
and investors need to keep abreast of new legislation by attending courses and
seminars run by reputable organisations.
The
National landlords Association is a good source of information and it lobbies the
government on behalf of landlords.
National landlords Association is a good source of information and it lobbies the
government on behalf of landlords.
Property
still a good investment because you can use leverage or bank and other people’s
money to acquire properties.
still a good investment because you can use leverage or bank and other people’s
money to acquire properties.
If
you currently own property, I would not jump ship just yet. If you are planning
to invest, I would proceed with caution and always educate yourself before
dipping your toe in the market.
you currently own property, I would not jump ship just yet. If you are planning
to invest, I would proceed with caution and always educate yourself before
dipping your toe in the market.
If
you like further details a property courses, such as a one-day introduction to
property investing, drop me a line.
you like further details a property courses, such as a one-day introduction to
property investing, drop me a line.
I
have a limited number of complimentary tickets to attend an excellent course run
by experts, which will give you a clear overview into the market.
have a limited number of complimentary tickets to attend an excellent course run
by experts, which will give you a clear overview into the market.
My
new book, Yes, money can buy happiness,
is due out on the 4th of May. Watch out for a special offer for all my podcast
subscribers!
new book, Yes, money can buy happiness,
is due out on the 4th of May. Watch out for a special offer for all my podcast
subscribers!
