The Garrulous Jay – Buy To Regret Redux

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The direction of travel for taxation and regulation has been against private buy-to-let landlords for a number of years now. The Department for Levelling-up, Housing and Communities’ Policy Paper, published in June, presses the accelerator on this, potentially leaving many hoping it goes about as far as Michael Gove’s career in that particular ministerial post.

Looking back over the last few years, those owning buy-to-let properties have, for example, lost the ability to expense mortgage costs, seen the 10% wear and tear allowance abolished, witnessed the introduction of the 3% stamp duty surcharge on purchases and been hit with an 8% capital gains tax uplift on disposals.

The recently published Policy Paper, A fairer private rented sector, carries through some of the Tory Party’s manifesto commitments, with added extras to boot.

Chief among the policy recommendations is the abolition of so-called Section 21 no-fault evictions and the Assured Shorthold Tenancy regime. Taken together these measures, as the paper succinctly puts it, mean “No tenant should be evicted against their will without proper reason and proportionate notice.”

All rental agreements would move to rolling contracts such that it would only be possible for landlords to evict tenants for repeatedly falling into arrears, antisocial behaviour, the purpose of moving a close family member into the property or a wish to sell the property.

Anticipating landlords seeking to use rent increases as a mechanism to evict tenants ‘by proxy’, tighter rules are proposed to limit the frequency and magnitude of these too.

All of this and more will be supported by the introduction of a new Ombudsman and a scheme of compulsory membership for private landlords, to “ensure that all tenants have access to redress services in any given situation, and that landlords remain accountable for their own conduct and legal responsibilities”, even where they employ an agent.

This may be of little or no relevance to many readers, but I am frequently asked for my views on buy-to-let properties by both owners and those considering investing in the market.

As an asset class UK residential property has delivered superficially attractive returns. According to the Nationwide Building Society it has delivered an average 2.5% per annum above inflation return since Q2 1984, albeit with significant volatility over this period.

As with all investments, though, investors should be absolutely clear as to the pros and cons, as well as the risks, before deciding whether the buy-to-let market is for them. Taxation and regulation, compared to other investment opportunities, are just two considerations that need to be borne in mind, along with the illiquidity of the asset and its administrative complexity.

It is also vital to guard against falling prey to the emotional pull of “bricks and mortar”, which seems to exert a powerful influence over the British psyche.