Recently, George Osborne issued his Autumn Statement, containing some surprising announcements that may have an impact on the letting industry. Following our summary of the key points in the statement, we thought it would be good to find out the opinions of one of the industry’s most respected experts, Eric Walker, MD of the Northwood group, and his thoughts on how the Government’s recent raft of housing market changes might affect the future of the letting industry. Here’s what he had to say!
There is no doubt both landlords and agents face challenges, but this is nothing new and this industry is one that adapts better than most. I have read the prophecies of landlords leaving in droves as I have read reports of an imminent crash in the housing market every year for as long as I can remember. Not even Robert Peston has ever called it right. Nevertheless, we are currently experiencing an unprecedented number of changes. These changes can be categorized under the headings ‘regulatory’ and ‘financial’.
Red tape is on the increase and undoubtedly there will be more to come. New rules over smoke alarms, immigration checks, licensing, consumer protection and the relentless voice of Shelter and Generation Rent make letting a complex business. Whilst I support the need to improve standards, increasingly the lack of policing and enforcement creates an unfair burden on those who comply. Once the consumer enforcers start policing, and they will, there may be many landlords who unwittingly find themselves with large fines and even criminal records. Further, they will find that regaining possession of a property even where a tenant is in breach of the tenancy agreement will become much more difficult.
There was a time that all the Court required to grant possession under S21 of the 1988 Housing act was a tenancy agreement and a copy of the notice. Now, you must prove the deposit is protected, the tenant was given prescribed terms, provide a copy of the Gas Safety certificate, the EPC, proof of providing the Government’s ‘How to Rent’ pamphlet and that there were no repairs reported which were not dealt with appropriately. My advice as one would expect is to use a professional, accredited letting agent.
Quite why George Osborne is targeting the buy to let market when more and more people chose to rent is baffling especially as there is such a shortage of homes and the private rented sector is a rich vein of supply. Some investors may well rush to buy before the April deadline, but this may cost them more as there will be lots of competition. What investors may not have considered is that Stamp Duty can be off-set against your future capital gains tax liability when you sell your property. Therefore, perhaps we should just look as the increased stamp duty charge as an advanced payment on CGT!
Towards the end of next year, landlords may well find an increase in the number of tenants looking for a home reducing void periods and raising rents through simple supply and demand. Interest rates remain artificially low and are unlikely to exceed 2% until 2020 at the earliest which will continue to mitigate the increased tax burden on mortgage interest. There is little doubt that property remains a safer and better long term investment than putting your savings in a bank account.
Some commentators believe many landlords will simply sell up creating an even greater housing shortage. I don’t subscribe to this as it implies a majority of landlords are professional investors. In fact, over 70% of landlords only have one property and 20% make no money from letting and rely upon capital growth as a long term investment. If I am wrong, then the seemingly anti-landlord measures will spectacularly backfire on those who called for them. If I am right, the market will simply adjust as it usually does. It will be a bumpy ride, but within 18 months we will have wondered what all the fuss was about.
The single most important element of improving this marketplace is consumer protection. I urge people to support the need for regulation and compulsory client’s money protection insurance. In an ideal world, I would like to see all deposits held in a custodial scheme. Landlords and tenants should seek out agents who choose to be members of a regulatory body and question those who do not. Tenants are quite properly becoming more aware of their rights. By providing a fair and professional lettings industry everyone but the rogue element benefit.
Eric Walker, MD Northwood