HOW THE TENANT TAX AFFECTS
Government says that only 1 in 5 (20%)of landlords will be affected by the tax changes, and say they will be the wealthiest ones but have produced no supporting evidence for this. In fact the opposite is true as the tax change affects landlords with mortgages and wealthy landlords do not need to borrow. We believe the number of landlords affected will be far higher than 20% but if we use that figure as an example, these are likely to be the landlords that have big portfolios and are highly geared (they have borrowed significantly). Therefore the number of properties affected could be very significant and the result will be that hundreds of thousands of tenants (possibly millions) could be affected.
Government also says that the change should not adversely affect rents and we think this is completely wrong. It is fact that rents are already increasing due to the taxation changes. Some families and individuals are already being evicted because they are social tenants that cannot afford to pay higher rents.
A great many landlords never increase rents on a tenant in situ, so as time goes by and rents naturally rise, the tenant is benefitting from a low rate. Call it a loyalty bonus if you like but landlords do this because they like to keep a good tenant in place and things just ‘ticking over’. It will now be impossible for a good number of them to carry on like this and these tenants could see massive rent hikes just to pay George Osborne’s tax.
A survey done by Rentify shows that 56% of Landlords intend to increase rents as a result of the proposed change and another by the Residential Landlords Association had a finding of 65%. We think that people that responded to the survey generally did so because they understand the change in tax. Others have not fully grasped it yet but as the reality of the change hits the sector, the actual figures will be much higher.
We also think that the condition of rented properties will fall as there just won’t be the money to maintain them. Local Government, Charities and good Landlords have worked hard over the years to raise standards but will now see their work undone.
Unfortunately those are the ‘best case’ scenarios that we see. If interest rates go up it may be impossible to increase rents high enough to meet the problem and Landlords will be forced to sell up, therefore evicting tenants. The vast majority of Landlords are good hard-working people and this situation fills them with dread, but the former Chancellor’s change on mortgage tax relief is going to present them with no choice whatsoever.
Facing homelessness, tenants will be looking for alternative accommodation in a shrinking sector.
There is simply not enough social housing to cope with the enormous demand in this country and without the Private Rented Sector Councils will be forced to put families into Bed & Breakfast accommodation. Unfortunately budgets are being slashed so despite their obligation to house families this may become completely impossible.