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August 11, 2015 at 8:55 am
HOME page could be improved.
When I came to the page I just read the words on the right, ignoring the pictures on the left.
This gave the impression that it was aimed at just the three groups mentioned.
Were I not a landlord I would not have explored further.
I woud suggest:
a) putting the headline across the top of the page.
b|) putting the pictures next, possibly with bigger/more obvious text.
c) putting the rest of the text below the pictures of the target audience.
August 11, 2015 at 10:31 am
Thanks for feedback Michael, and yes we will be changing the text on the right and probably the headline too.
August 11, 2015 at 11:42 am
Great idea to have a website where different groups can see how they are affected but I think some of the arguments need to be developed further before significant traffic and inconsistencies need to be checked. For example, in some parts, you say that house prices will drop, and then for first time buyers the argument says that house prices will not drop. Also, there was a part where you said that we had been encouraged by the media, the banks and the government which doesn’t sit well with me (but this is just my opinion).
All in all, great work for putting this together
On a related note, but not a comment on the website, this new proposed policy is going to hit really hard when interest rates start rising. If you assume gross rental yield = interest rate for arguments sake and a leverage of 80%, for a 40% tax payer, this means that their effective tax rate will be 72%. For a 45% tax rate payer, the effective tax rate becomes 90%. It is not difficult to imagine a situation where this goes over 100%
August 11, 2015 at 5:27 pm
Thank you Babs. I’ve tried to clarify the text in the examples of inconsistencies on house price movement.
I do not understand why you are not comfortable with saying that we have been encouraged to do something about our pensions by those sectors. There is plenty of evidence to support that.
You are of course completely right in your comments about the impact of interest rate rises. It will greatly exacerbate the impact of the tax change and make things more difficult for Landlords, and in turn their clients (tenants).
Thank you for your input and positive comments.
August 12, 2015 at 9:12 am
I just re-read the section I referred to. Perhaps if it wasn’t its own paragraph it would have been clearer to me. The part that I would suggest gets taken out is the “media, and the banks” part. I say this because of the following:
The “media” cannot be trusted to provide investment advice and ultimately, the decision is up to the individual investor what kind of media they consume and where they get their investment advice from. You can just as easily get arguments for, and against depending on where you look.
The banks are just profit maximising institutions and will encourage you to do whatever will make them money really – it is again up to the investor to decide whether a product is right for them.
I guess what I am trying to say is that the media and the banks cannot have the finger pointed at them in any way and do not have anything to do with the now unfavourable tax treatment so they shouldn’t be mentioned.
The government, however, should be questioned for taxing a specific industry unfairly
a) without any substantial negative impact or externalities on the economy (for example, you can argue that smokers will cost the economy more and hence smoking should be taxed) they are trying to make up for;
b) and not having provided any specific support or subsidies for the specific industry that they are trying to cover their related costs
This is just interfering with the normal course of day to day business.
I wouldn’t be surprised if new accidental landlords simply refuse to declare their income… What rational person would, when you could take the chance that you will never get found out and keep >50% of your profits vs the [small?] chance of getting caught out?. The honest ones are being made scapegoats…
Once again, many thanks!
Hope you find this helpful
August 13, 2015 at 2:17 pm
I agree with everything you say there Babs as I’m sure everyone else involved will too. It is not our intention to ‘point a finger’ at banks and media, but more saying that we have all become acutely aware that we must do something in regard to providing for our own pensions.
I also think you’re right that some Landlords will not declare income. Personally I declare every single penny I ever make. I’ve even declared 24p interest on a dormant bank account! I’m not opposed to fair taxes and, like you, believe it right to declare income.
I appreciate your post. It makes good points.
August 12, 2015 at 11:51 am
If it is a “business”, then yes, they would get a full deduction for the costs of furniture and interest, but rents would be liable to VAT and net profit liable to Class 4 NIC as well as income tax.
August 13, 2015 at 2:12 pm
If we were able to register for VAT Bob then we would have to charge VAT to the tenant as well as claim it back on all our costs. However there are many businesses that are not VAT registered so I don’t really see what you’re saying.
August 12, 2015 at 12:09 pm
I’m not sure what supporting evidence there is that rents will go up as a result of this. The policy is very similar to an increase in interest rates. Rents have never been correlated to interest rates – if they were, rents would have plummeted over the last 7 years, and soared in the early 90s. Rents are based on the amount of money that people have left over after the essentials in life – demonstrated by their correlation to wages, so more of a privately tax on earnings (http://www.cityam.com/211816/buy-let-it-s-not-all-about-capital-growth). If there was competition in the market, competitively set prices which would be amortised cost of building + maintenance + insurance + a normal profit. These cost roughly the same across the country but higher wages in London etc. are the reason for higher rents.
The mechanism for rents going up would need to be a reduction of supply but unless a landlord demolishes a dwelling or leaves it empty and earning no rent, supply will remain constant simply end up in owner occupiers hands or sold to another landlord at a price that can be supported by rents
August 13, 2015 at 1:42 pm
Hello Mombers, thank you for your comment.
There is a lot of supporting evidence in relation to rent increases, much of it I guess, is within Landlord forums and direct contact though, so I don’t know if you’ll accept that as evidence. However in a free market economy pricing is almost always down to supply and demand.
However just taking one step back for a moment we have included within the site the results from two surveys that were taken shortly after the tax change proposal, and it is clear that Landlords do intend to increase rents.
Personally it is rare for me to ever increase rents mid-tenancy. Indeed I’ve only ever done it once before, and I know many other Landlords think the same way as me. If we have good tenants then we look after them because we want to keep them. So again speaking personally, I have several tenants that have been with me for many years and never had a rent increase, including people in houses of multiple occupation, where utility costs are significantly higher than they were when the tenancy started. Now I may well be forced to raise rents because of the additional tax burden. I know many other Landlords that say similar, so yes, I do believe rents will rise – well I know they will.
However that won’t necessarily apply across the country in the same manner. The problem elsewhere is that Landlords may need to sell up and that will potentially cause a shortage of supply. The conundrum then is that there is more upward pressure on rents, even though properties are being sold because rents can’t rise. Will other Landlords buy the houses as you predict? I would say in most cases no because there are not enough cash buyers about to do so, and this is a tax which does not apply to a cash buyer. Also in many cases a Landlord cannot sell because he will be in a Capital Gains trap, and due to the change in the taxation system, he could have a tax burden much higher than any profit he’s making. What can he do then?
The real issue is that successive Governments have not even come close to building enough houses to meet demand, and the Private Rented Sector has invested money into it. Please remember that there are thousand upon thousand of people that for whatever reason need to rent and not buy. The PRS have put the money in and even house builders say that they build houses knowing they have a market in that sector. If that market goes they will scale back production and make the whole supply issue worse.
August 12, 2015 at 2:08 pm
I’m old enough to remember the good old days, when landlords were taxed at much higher rates; rents were capped/controlled; there was plenty of social housing as an alternative to private renting. And for good measure, landlords paid higher interest rates than owner-occupiers and owner-occupier mortgages were capped at two or three times income. And we had Domestic Rates (and before that Schedule A taxation on owner-occupiers as well).
The result of all this was that the number of private renting households fell from 90% at the start of the 20th century to less than 10% by 1990 – with an equal and opposite increase in owner-occupation. This increase in owner-occupation levels was always heralded as a Very Good Thing indeed, and nobody mourned the demise of private landlords as a class. The knock-on effect was a more equitable distribution of wealth, a smaller and more stable banking system and a much smoother economic path.
Having been a landlord and a tenant in my life, I can honestly say that landlords serve absolutely no useful purpose whatsoever and provide nothing of value – as evidenced by the fact that a lot of tenants end up buying the home they were renting and absolutely nothing changes. If landlords were actual businesses (like a hair dresser or a car mechanic or a farmer) then we would not be able to just cut them out of the loop. I can’t cut my own hair, fix my own car or grow my own food, but I am perfectly capable of calling the plumber, doing a bit of DIY and sorting out the insurance on my own home.
I suspect that you will hotly disagree with this
August 13, 2015 at 1:51 pm
Thank you for your views Mark and yes I do disagree with you. If you take out the investment that individuals make into the PRS then house builders will scale back, plus it is widely accepted that the recovery from recession has come on the back of the housing market. A great deal of that growth in the housing market is from the PRS.
I understand your arguments of being able to do a lot of stuff in your home yourself, but I’m afraid that’s not the case for everyone. I have in the past had tenants that are capable of doing a lot of things but don’t want to. I have had people that like knowing what their housing cost is going to be each month without being hit with a bill for a water leak or boiler repair and so forth. I currently have elderly people as tenants that can do little work on their home and can also not afford to. I have a single mother that doesn’t have your skills and the list goes on.
Plus lets not forget that the PRS houses so many people that the Councils don’t have the stock to. Even worse the Councils are now facing another round of selling them off at a discount, just when we have more people in B&B accommodation than we have had in years.
So yes, you are right in that I (we) disagree with you but again, thank you for your comments.
August 12, 2015 at 3:29 pm
Regarding your attempt to scare economically ignorant tenants by threatening their rents will increase. Why is it that rises in interest rates lower house prices? After all, selling prices are only capitalised rents.
According to your logic, rises in costs, ie interest rates, should raise selling prices. But they don’t.
Ergo, the incidence of increases in costs come out of rental income.
Why? Because Land, which makes up the majority of rental income is inelastic in supply.
So, prices are set by affordability, not cost.
Basic economics says changes in cost always falls on the most inelastic factor.
Common sense really.
August 13, 2015 at 2:06 pm
I agree with you that supply and demand covers the issue Benji. Just stop for a moment though and imagine a supermarket selling, say, tomatoes. They can buy them in at whatever price and then mark them up at whatever margin and sell them on to make a profit. People don’t have to buy them of course and if they’re too expensive maybe they’ll buy something else.
The problem we have with the new tax proposal is that it will significantly put up a Landlord’s costs in as much that, with fairly modest interest rate rises, he could be paying well over 100% tax. So, say he’s now facing a tax burden of maybe 130%, meaning that for every £1 profit on the property, he has to pay £1.30 tax. Believe me this is more than likely to be possible for some people with this proposed change to the tax.
So, what can he/she do? He can increase the prices he charges, as a supermarket might have to do if there is a tomato famine that pushes their wholesale price up, or he can stop providing the service much like Tesco’s stopping selling tomatoes because nobody wants them at the new price.
We have a strong demand in this country for homes, you’ll probably agree that it is just too strong for the supply we have. Therefore in many cases the rent will go up to cover the tax plus interest rate rises and someone will still pay for the property because they can.
If the Landlord sells instead then someone must lose their home, which is a very bad thing. If that means there is less rental stock then there is further upward pressure on rent levels.
So that’s the logic. We’re not trying to ‘scare’ people. We’re trying to show the cold hard facts of the economics of it all but what I think perhaps you may be not realising is just what an impact this change will have when interest rates go up. I have used an example of 130% tax level but for some it will be worse, and I’ll give you an example of one Landlord I know…
This person is a lower rate taxpayer. He works full time but has a fair sized portfolio on which he makes very little money. This change combined with a very modest interest rate rise will mean he will move from lower rate into higher rate and also lose most of his personal tax allowance. Indeed his tax burden will be higher than he makes from his salary and his rents! So, what is he to do? Put rents up or sell up and evict people?
Lastly, I’m sure you didn’t mean it this way but your comment seems to suggest that tenants are all economically ignorant. This is certainly not the case.
August 13, 2015 at 7:40 am
I have tried twice to complete the signing of the petition but keep being told to “click the link in the email” in order to register my signature. But I cannot get back to the email having filled in my details so I guess I still haven’t signed the petition!
Sorry if I am being dense!! Please reply to my office email : xxxxxxxxxxx and I will try again.
August 13, 2015 at 4:58 pm
You should get an email in your inbox – you then need to click on this link.
It’s the clicking on the link that shows the government that its a real response to the petition. The email will be sent to the email address you put in when you filled in your details on the petition site.
Hope that helps.
August 13, 2015 at 4:18 pm
If landlords can just increase rents to cover the tax, why on Earth are you all making such a great big fuss about it?
August 13, 2015 at 6:02 pm
Thank you for your question, though I’m a little surprised by it. I think we’ve made a lot of compelling points as to why we think the proposed change in tax is a bad thing, not just for us but for the country as a whole.
In many parts of the country rents will rise, there’s no doubt about it. In my own area the general consensus of opinion is that they’ll go up about 30% over the next 5 years. Many will say ‘impossible’ because tenants will just move out and find somewhere cheaper. However the liklihood of finding somewhere cheaper is slim, for the same property in the same area. I’d also quickly add that 30% over 5 years is only 4.5% compounded and the market will take that in my area.
But there’s the whole social conscience side of it too. I have given one example of a friend that will have to make tough decisions but here’s another. This gentleman has a relatively modest portfolio of properties and his tenants include elderly and handicapped people. He works in the public sector and as I think we all appreciate, that most often means a modest salary. With a 2% interest rate rise and with the tax proposals fully implemented, he will need to find £32k pa from his public sector salary to meet the extra tax. In his own words “that’s impossible”, and the tenants will not be able to pay that much extra on the few houses he has, so he will be forced to evict and sell up. So there we have the issue, in his case he’ll be evicting elderly and disabled tenants, which he doesn’t want to do, and I daresay you wouldn’t want him to either.
I could give more examples but this one makes the point.
As I have said elsewhere, one of the problems we are facing as Landlords is that people (the General Public) just don’t understand what this tax change will mean. Firstly it is a misconception that if someone pays £500 pcm in rent then that’s what the Landlord pockets. Sure if he has no mortgage on the house then a large chunk of it will be banked, but if there is a mortgage then that cost has to come out. For most Landlords it is the biggest cost, so what’s left after all the costs is relatively little. Now the Chancellor is saying that he wants to tax the actual profit (what’s left over) and the mortgage payment, and that just doesn’t make sense because the tax burden will, in many cases be higher than the profit. This is why rents will have to increase or properties sold off meaning evictions.
The problem with housing in this country is that we just aren’t building enough and until the Government really tackles that problem then anything else is just ‘smoke and mirrors’. Nothing will be solved.
August 13, 2015 at 7:20 pm
@ John McKay
Ok, if you draw an analogy between a tomato and housing, then you don’t understand basic economics.
Why do you think a tomato in London costs the same as one in Hull, but a three bedroom semi costs four times as much?
It can only be inelasticity of supply, which completely changes how and why prices are set.
But hey, a 20 second Google search found these helpful tutorials for you.
Remember, location is perfectly inelastic in supply, so it’s this, not cost, that sets rental income.
Hopes this helps. If not, I’ll have to think of something else to make it easier for you.
August 13, 2015 at 7:46 pm
“Lastly, I’m sure you didn’t mean it this way but your comment seems to suggest that tenants are all economically ignorant. This is certainly not the case”
No, I’m telling you that either you must think your tenants are economically ignorant, or by default, you are.
I got my answer. By the way, that’s not an insult, you just haven’t thought things through properly.
And yes, I’ve been a professional landlord for over twenty five years. I’ve spent much of my copious spare time studying economics, particularly that part relating to land and tax incidence.
You are not wise arguing this point, as it only makes you look foolish.
But, don’t take my word for it. Go and ask any economist, or do a tiny bit of research. The theory is uncontroversial, and the evidence well documented.
August 13, 2015 at 9:18 pm
Clearly we are not going to agree Benji and that’s fine. You seem to miss my point deliberately and that’s fine too. The whole thinking about the tomato analogy is that a retailer can supply if he makes a profit on it. In my example forces outside his control dictate the price he can supply at. If it’s a price the market can accept then he has a sale, if it isn’t then he has to stop supplying. The forces outside our control are nothing to do with land price elsasticity. If you have studied economics as you say then you would understand that. The Chancellor is imposing an overhead which is directly linked to interest rate rises. The interest rate rises will take operating costs higher, which on their own landlords can accept because the safety nets are built into this when a lender agrees a mortgage. His/ her profits will be reduced but it is still a viable business model. Combine it with a much increased tax burden and it is not. Tax can, and will exceed more than a 100% rate in many cases, so either price has to go up or the product (property) has to be withdrawn from market. Do you understand now? It is absolutely nothing to do with what’s left over in a tenants pay packet, it’s nothing to do with land prices, it is (as you say) basic economics. Either the price has to go up because costs have, or supply must be withdrawn.
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