Rental Shortage

 Rental Shortage

The claim this week by the Royal Institution of Chartered Surveyors (Rics) that the UK is facing a critical rental shortage maybe good news for existing and prospective landlords.

Rics estimates that at least 1.8 million more households will be looking to rent rather than buy a home by 2025.

In the face of this rental crisis, the body has called on the government to offer tax breaks to encourage building and investment in the sector but to date the government has remained focused very much more on home ownership and many policies introduced by ex-chancellor George Osborne were designed to dampen the buy-to-let market amidst concerns that it was “overheating”.

Stamp duty change

The number of UK households renting property rose from 2.3 million in 2001 to 5.4 million in 2014, according to Rics, but just when more investment is needed it appears that such investment is declining as a result of the government’s changes to tax relief and stamp duty.

From April 2016 anyone buying a home that is not their main residence must now pay a 3% stamp duty surcharge. Although this led to an initial spike in property purchases in March, subsequent transactions have fallen quickly again thereafter.

Landlords will be further hit when their right to deduct their mortgage interest from their income tax bill at the higher rate is gradually removed over the next four years.

Reverse the Stamp Duty Increase?

Rics has called for the stamp duty increase to be reversed, a move which would no doubt give a boost to the buy-to-let market but anger potential first-time buyers, many of whom say that they are regularly outbid by buy-to-let investors.

Against this, Generation Rent, a group that campaigns for better conditions for tenants, is adamant that the higher rate of stamp duty is a good thing because “it does give first-time buyers a much-needed advantage against people who are simply betting that house prices will keep going up,” said Dan Wilson Craw, their policy manager adding “In the first three months of the surcharge, the tax on second homes raised £424m – that cash could help build new homes for people on low incomes.”

Huge issue

The Association of Residential Letting Agents (ARLA) which represents landlords said that rents were likely to rise.

“Tenants will be hurt most, as landlords recover the stamp duty increase by charging tenants more,” said managing director David Cox, “and the simple answer is that we need to build more homes.”

In addition to a reversal in the stamp duty increase, Rics also called for:

• Private house builders to be encouraged to build specifically for the rental sector
• Pension funds to be given tax breaks to fund large scale rental properties
• Councils to be encouraged to release brownfield sites for building homes for tenants

Rics’ call comes in the immediate aftermath of a commitment from Communities Secretary Sajid JAvid that “the government will take “unprecedented steps” to encourage construction of homes for people to buy”.

He told the Conservative Party conference in Birmingham that the housing shortage was “a huge issue for our country” and would be his “number-one priority “as far too many young people cannot get a foot on the housing ladder. Many are being forced to live back with mum and dad as rents soar faster than wages.”

Among the plans announced was an Accelerated Construction scheme, using £2bn of new public sector borrowing to make public land with outline planning permission available to builders.

Rental Shortage and Higher Rents to Give Opportunities for Landlords

For existing landlords, the continuing rental shortage, particularly of good quality properties, in many areas of the country, plus the expectation that many more people will choose or be forced to rent in the future, is likely to be good news as rent increases are almost inevitable in such circumstances.

The expectation of higher rental income is likely to encourage new investors to enter the market despite the extra costs from the stamp duty surcharge and removal of higher paid tax relief.

In London shrewd buy-to-let investors have been hunting out bargains as developers have been facing a downturn in initial sales for the first time in several years whilst big development projects such as Crossrail have led to an increase in popularity for investment along the route.Re

If you are an existing landlord looking to expand your portfolio or a new investor seeking to start your journey into the buy-to-let market, we are able to offer a range of services and high quality advice and guidance.  For more information, call Tom on 020 7205 4060 or email him at [email protected]  or visit sourceinvestments.com