Buy-to-let reform: The Good, the Bad, and the Ugly political bashing of landlords – Hardman

by: Matt Hardman, director of The Buy to Let Broker
  • 25/06/2024
  • 0
Buy-to-let reform: The Good, the Bad, and the Ugly political bashing of landlords – Hardman
It’s not a big leap of faith to imagine a Labour government in a very short time. In fact, it’s the only real possibility right now barring a complete and total wild card election result.

Of course there are many promises being made as you’d imagine, especially around rental and buy-to-let reform. In truth, much of what Starmer plans to do has already been promised;

  • Wide reaching planning reforms.
  • 300,000 new homes to be built per year over five years.
  • Energy efficiency in homes by 2030.
  • An effective replacement for Help to Buy.
  • Removal of Section 21 and introduction of possible rent controls.

Many of buy-to-let reform suggestions are good ideas which most wouldn’t argue with (albeit some bordering on unachievable), some less so. I guess what we need to establish from here is what it will look like in a practical sense and how much power will be devolved down to local councils which could result in wildly different baselines from council to council.

Will these promises ever happen and can they be effective if so? We need to look at the wider impacts and the pros and cons especially when it comes to certain aspects of the buy-to-let sector, which is a vital string to the housing bow.

Buy-to-let reform: pandemonium or a fresh way forward?

When we talk about strings, for most, there will be no violin playing for landlords, despite the intrinsic nature of the private rented sector (PRS) playing a pivotal role in housing which let’s face it, governments don’t.

Section 24’s introduction whilst wrong and flying in the face of all accountancy rules ever formulated, was still a Tory dictat and a retrospective one at that, and so whoever we find in power, we need to ensure that plans don’t simply allow the PRS to crumble further away and leave another generation struggling to move forward with their lives. And that’s the worry.

We don’t have enough supply of any property type, for tenants, for first-time buyers or for homemovers. The more the rental market is strangled, the higher that market prices for rent increase, yet landlords costs have increased by exponentially more in terms of rate increases and taxation.

So, supply and demand would state that more rental properties but would give a fairer cost to new tenants, and they would be less likely to see increases in rent, especially now that inflation is under control.

Yet from certain soundbites, we may well be ignoring the basics of supply and demand and simply limit rents and stop “no fault evictions” with the removal of Section 21.

So, what might this brave new world look like? Pandemonium or a fresh way forward?

I think you know the answer. We live in a capitalist society, ok life isn’t fair, but we need to seek ways to make it fairer, not shoot our collective selves in our collective feet.

In reality, the removal of Section 21 for the vast majority of fair and reasonable landlords would not create an issue if the rules around evictions do allow possession to be taken back where it’s absolutely needed.

And there are plans to incorporate this. Will Section 8 stand upto significantly higher demand and will landlords be stuck with problem anti-social and destructive tenants longer than they do now? Time will tell but it’s likely, although I don’t see significant impact to landlord appetite here.

Yet if rent controls were introduced this would yet again fly in the face of standard protocol and take what limited oxygen is left out of the buy-to-let market for many.

This would likely result in less landlords entering the market and many in the market now would be considering “taking their chips off” the proverbial table. After all, why take risks with your own money when the upside is limited by draconian policy.

 

Rent controls will only benefit ‘lucky few’

There seems to be an assumption that landlords are constantly and consistently increasing rent at every opportunity and that simply isn’t the case. In fact, many of our clients happily rent at under market value because they highly rate having a communicative tenant who they can trust.

So when do rents increase? Well of course the market finds a true rent, and landlords can be forgiven for having to utilise that true rent when remortgaging, in order to maintain the current loan size they have based on stricter interest coverage ratio (ICR) tests – and this in turn allows longevity for the tenant themselves because a landlord sitting on standard variable rate (SVR), can result in a property going on the market to solve the problem. And of course don’t forget that those with borrowing in personal names could be staring down the barrel of eye watering tax rates.

We have huge pent-up demand for rental property, there are now around 26 applicants (at last count) for each UK property which hits the rental market. Yet we are making few plans to assist, only to limit rent which could well impact supply further and create a bigger problem than we seek to solve.

For renters, limiting rent could mean more stability, fewer surprise evictions, and a more predictable rent bill. However; only for the very lucky few.

But what about the rest?

We’re sure that any new government will see that limiting market rent will not solve the issue and that as well as a healthy supply of new homes, sitting alongside Help to Buy and first-time buyers – we need a varied housing supply to cater to all, and that includes those that wish or need to rent.

At least we have the learnings from the Scottish marketplace, or shall we say ‘heavily restricted’ marketplace to show us that we really needn’t go there – and that we really should stop bashing landlords politically when its comes to buy-to-let reform.

To take a line from the western title, “If you cut down my percentage, who knows, it might just interfere with my aim” – and that’s the real concern here, because if the landlords aims change too far based on restrictive policy, they may no longer be known as landlords. That’s a step we don’t want to follow far.

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