The Section 24 debate rages on. This is the part of the Finance Act 2015, which changed the rules on landlords being able to claim back mortgage interest and offset it against rent, as well as increasing their taxes.
The property site Property118 recently featured a series of discussions with landlords, highlighting the consequences that Section 24 has had so far for their businesses. In fact, as will become clear, it’s more a case of the consequences that Section 24 has had for the tenants, not least those tenants who are on housing benefit. The site is actually collecting views from landlords that can be used in discussions with politicians, local councils and housing charities.
There are some revealing stories from landlords. As expected, in order to stay in business, many are having to pass on the rises in costs which they have suffered as a result of Section 24. If they don’t do this, they basically no longer have a business. A landlord named John explained that he had had to tell a tenant that rent would be going up, after being held for two years. That tenant moved on. He is now going to have to tell a number of other long-term tenants (some in residence for more than eight years) that their rent, too, will be going up. Tenants in M8 lettings can expect similar news.
This landlord gives his tenants a discount for being a responsible tenant. He is expecting the tax on each property to increase by about £2,000 a year. In order to break even given the new levels of taxation and the loss of mortgage interest tax relief, he would have to put his rents up by 20%. But the tenants will not be able to pay this, and he is therefore thinking of selling his properties which he had intended to provide his pension income.
Another landlord, Martin, pointed out that these extra taxes were not included in the Conservative party’s manifesto. He charges new tenants the market rate for their rent but after that he increases the rent very little, and some have no further increases for many years. All of these tenants now face very large rises in rent as he attempts to balance the books.
He feels that it is particularly unfair on landlords who have one or two buy-to-let properties and also work, because they are the ones that will fall under higher rate taxation with the result that they will barely be covering their costs. He feels that if mortgaged buy-to-let landlords are forced to sell, it will be to the great advantage of un-mortgaged landlords who will be able to step in and pick up properties very cheaply, and that this is a form of wealth transfer. The gainers will be the very rich with large buy-to-let portfolios, or corporate landlords.
Another landlord, Colin, has tenants who are mostly on housing benefit, but some of these have lived in his houses for over 10 years and all of his tenants are long-standing. He charges rents based on LHA which are therefore below market value. He wrote to his tenants some months ago warning them that rents would have to go up and that he would have to dispose of some of his houses.
One family could not afford any increase in rent and has gone to share the same property as other members of their family. Another tenant has asked for notice in the hope that they will be rehoused by the council. Other tenants have agreed to an increase of 15% in their rent – still below market value.
He feels that people are becoming homeless, and that very poor people who are already stretched are having to find more money for rent.
Another landlord, Chris, says that he has never increased the rent of an existing tenant. He owns 39 properties and half of his tenants are on some kind of benefit, including in-work benefits for people who on tough employment contracts. Some tenants have been with him for nine years and in total he provides housing for about 70 people.
There are other landlords in the conversation and three things come up repeatedly. First, that all of these landlords are going to have to put up rents. Second, that many of them are thinking of selling out at least part of their portfolio. Third, that they will never ever vote Conservative again.