The only factor that remains clear is that the new regulations (which on tax relief are not fully tapered until the 2020-21 tax year) have brought with them a host of unintended consequences. The least expected is for the Treasury itself because tax receipts for stamp duty land tax in the second quarter of 2018 were down 13.8 per cent from a year earlier. Much of this reflects a 17.2 per cent drop in transactional volume in the broader housing market, but it’s also due to a decline in revenue from the 3 per cent surcharge on second home purchases. In fact, receipts in the second quarter were no greater than three years earlier, suggesting another case of higher taxes bringing in lower returns, but also the fact that people are not buying or selling homes because of other factors. For buyers, the worry is that mortgage interest payments will rise, while both buyers and sellers are worried that values will start to fall back. The common factor is that more people are simply sitting on their hands.
For existing landlords, the outlook is not as grim as it may seem, and a majority of landlords seem happy with their business. There are two points to make here. Landlords without a mortgage to pay (and that’s a majority of landlords) are unaffected by the tapering of mortgage interest rate relief, and unless you’re expanding your portfolio there are no additional stamp duty payments to worry about. It is also true that demand for rented property continues to outpace supply by a country mile, which over the long term will provide a measure of support on rents. This means that the advantages and financial gains are most suited to the landlord who is prepared to view any investment on a long-term basis.
However, recent data from the Royal Institution of Chartered Surveyors (RICS) showed that there is still a decline in new landlord instructions, with 9 per cent more respondents reporting a fall rather than a rise; that’s the ninth consecutive quarterly decline. Rental growth of around 2 per cent is projected over the next 12 months, but with the supply/demand imbalance remaining, rents are projected to go up by around 15 per cent over the next five years.
For tenants, this is bad news. The supply of rented accommodation could be improved by attracting institutional funds to be used to finance the build to rent market. Just recently, Legal & General (LGEN) exchanged contracts on West Tower in Manchester. Providing 350 units over 44 floors, it’s the tallest build-to-rent scheme in the UK. It also brings the insurer’s development pipeline to over 750 units in Manchester, where 3,465 rental households expected to be created every year, according to Experian. But this is just a drop in the ocean because the 2.3m UK households renting property in 2001 is expected to rise to 7.2m by 2025. In the last year, the number of build-to- rent homes completed, under construction or in planning rose by 30 per cent to 117,893, although only 20,883 of these were completions. This a step in the right direction, and the government has pledged £4.1bn to fund new roads, schools and medical centres. And that’s where the supply/demand imbalance will be improved, but only if more money is invested either directly through government initiatives or by encouraging institutional investors.
Meanwhile, the private landlord, more than half of which have just one property for rent, will continue to provide the backbone to the rental market. However, as well as offering protection to tenants through increased regulation, it remains important that the one property landlord is not pushed out of the market before there is something else to take their place.
