When I meet John Heron near the top of Tower 42, Paragon’s offices in the heart of the City, it’s not long after the Chancellor made some shock announcements that could change the face of the buy-to-let industry as we know it.
Many landlords have expressed dismay at the decision to limit the higher rate of tax relief for buy-to-let investors, which has more recently been coupled with a 3% hike in Stamp Duty Land Tax on buy-to-let purchases and second homes, as announced in the Autumn Statement.
It’s not just government that has launched an ‘attack’ on the buy-to-let sector. In recent months the Bank of England has also been trying to get a slice of the action, warning the industry that it is keeping its eye on activity.
Heron is frank in expressing his opinion on the Bank of England’s worries. “While it’s fair to have a concern around the risk of some lenders engaging in lending that might result in low credit standards, that isn’t borne out by the facts of current lending. Broadly we’re seeing an improvement in the credit standards of buy to let,” he says.
He believes that the characteristics of the market all point toward an industry which behaves responsibly and makes sustainable decisions.
“On that basis there is an argument that those powers are not currently warranted. The real point for consideration is how the Bank’s powers will be exercised. We want to see restraint in such a way that the powers concentrate their efforts on reigning in bad behaviour and not to damage a market that is very important in supporting expansion of the private rented sector.”
George Osborne’s first move to rein in activity in buy to let happened in July, when he announced that landlord interest tax relief would be limited to the basic rate of 20% to be phased in from 2017. Much of the Chancellor’s justification for clamping down on buy-to-let lending has been to increase support for first-time buyers.
But Heron says these two groups are not analogous, with landlords and owner-occupiers behaving in very different ways.
“A landlord owning and letting a property is engaged in a business activity. I think the concept of there not being a level playing field doesn’t really stack up.”
November saw Osborne deal an additional blow for buy-to-let investors. During his Autumn Statement and Spending Review he announced that second homes, which include buy-to-let purchases, would be subject to a 3% Stamp Duty surcharge on each pricing band.
Heron says this move is likely to do more harm than good, but unlike many commentators does not believe the changes will fundamentally change the face of the market. However, the impact for tenants renting from private landlords is likely to much more concerning, he adds.
“In the short term, obviously what we’ll see is landlords accelerating any transactions they have in the pipeline which will be disruptive. And then we may see a slowing of the rate of growth, which could have consequences for tenants. Nothing we’ve seen in any of the housing measures that have come forward so far from this government will cause a slowing in rate of growth of tenant demand.”
While Heron was notoriously closed book on the lender’s future plans, he said Paragon would be responding to the Chancellor’s announcements in the future, potentially with an enhanced propositions for landlords to incorporate their business.
But ultimately, its advice that will have the biggest role to play in the market, Heron says.
“Advice and the intermediary market will be vital in helping landlords reach the best decision.”
John Heron – a brief biography and quick-fire question round
Proudest career moment?
Surviving the financial crisis whilst being profitable throughout and without any tax-payer funded bail-outs.
Biggest challenge ahead?
Achieving a balanced housing market that meets the needs of both renters and home-owners.
If you were Prime Minister for the day, what would be your first policy change?
I’d ensure that genuine SME residential landlords were afforded equal treatment with comparable businesses.
What’s the best present you’ve ever given?
A lifetime membership of the National Trust.
