Landlords are fearful the buy-to-let sector will be used as a political football in the upcoming election, with politicians competing with pledges that could “end the market”.
A number of mortgage brokers said they have been contacted by their landlord clients with concerns about a Labour majority government and its potential ‘right to buy’ scheme.
The right to buy scheme replicates the scheme introduced by the Thatcher government which allowed social housing tenants to buy their homes at a discounted price.
Under the Labour proposal, the government would set a discounted price for private property, likely based on how long the tenant had lived there.
Dan White, director at Champion Hall & White, said: “I’ve had people call me about the scheme and I do think landlords will opt to exit the market.
“I think this could be catastrophic for the housing market and an outrageous ruling. Enforcing a right to buy would seriously damage the integrity of the property market and encourage the wrong message.”
Mark Bailey, director of property asset manager Landwood, warned a right to buy scheme could result in a negative outcome for renters if landlords chose to sell up and rental supply diminishes.
He said: “If politicians of any leaning are serious about fixing the housing crisis then this ridiculous policy is not the way to go about it.
“The solution is to build more social housing, more starter homes and get more people on the property ladder and reduce the number of renters that way.”
Sarah Drakard, IFA at Cruze Financial Solutions, said landlords thought they would be “even more attacked” under a Labour government than they already are.
She said: “Landlords already feel quite hard done by and hit by government policies over the past few years, but many think a Labour government would potentially bring changes that would make being a landlord no longer viable economically.”
The buy-to-let market grew rapidly after the financial crisis but its growth has since stalled after a number of tax and regulatory changes introduced by the Conservative government hit landlords’ pockets.
How the rules changed:
An additional 3 per cent stamp duty surcharge, introduced in April 2016, was closely followed by the abolition of mortgage interest tax relief for landlords.
Landlords then took a further hit when a shake up of rules by the Prudential Regulation Authority meant buy-to-let borrowers were now subject to more stringent affordability testing.
The changes to mortgage relief have been phased into the system since April 2017, but by April 2020 landlords will be unable to deduct any of their mortgage expenses from taxable rental income.
Instead, they will receive a tax-credit based on 20 per cent (the current basic tax rate) of their mortgage interest payments.
Following the changes, landlords who were higher or additional-rate taxpayers would now only get refunds at the 20 per cent rate, rather than top rate of paid tax.
On top of this, landlords could also be forced into a higher tax bracket because they would need to declare the income that was used to pay the mortgage on their tax return.
Chris Sykes, a mortgage broker at Private Finance, said his landlord clients were concerned the election would mean “something else” would happen which would mean “the end of the buy-to-let market”.
He said: “I think landlords are generally worried and concerned as to whether their investment will end up being a financial asset or a burden.
“It used to be more of a safe investment but now it’s become less attractive and if any further political changes come in, it will become even less so.”
David Hollingworth, director of communications at L&C Mortgages, agreed, adding that anything that put a further squeeze on landlords could ultimately cause prospective investors to rethink their plans or ultimately see existing landlords considering scaling back or exit.
By Imogen Tew
Source: FT Adviser