As numerous media outlets have reported a collapse in buying interest following the Brexit victory in the EU referendum, will Brexit be a blessing or curse for renters?
Cherie Blair has spoken at an event organized by Landlord and letting agent groups seeking to overturn Chancellor George Osborne’s planned changes to mortgage interest relief for landlords. The Chancellor’s proposals, introduced in the 2015 Budget and Autumn statements, are intended to eliminate tax exemptions which the Treasury claims are not enjoyed by investors in other asset classes such as shares. Under the proposals, landlords operating as sole traders will be less able to deduct mortgage interest payments when calculating their tax liabilities.
Mrs Blair spoke at the event as council to a legal challenge brought against the Treasury proposals following the failure of a formal Parliamentary petition. The motion started by the Residential Landlord’s Association fell more than thirty-one thousand signatures short of the required hundred thousand to merit debate in Parliament. The failure to exert pressure on the Government using petitions led to a crowdfunding campaign by landlords to finance a legal challenge to overturn the Chancellor’s measures.
Acting as legal council to the complainants through Omnia Strategy, the law firm she founded and chaired, Mrs Blair claims that the Chancellor’s proposed changes warrant a judicial review since they discriminate against landlords according to the European Convention on Human rights. This gives one the right to hold one’s property in a way without unfair taxation. Mrs Blair also purports that the tax changes go against European Union competition laws by favoring large institutions over small individual investors.
Also speaking at the event was the Conservative Life Peer and former member of Parliament Lord Howard Flight who had written a letter to the Government “Why the Government is wrong to attack Buy-to-Let.”
The conference, titled the “Tenant Tax Summit” was held on 9th June at the ILEC Conference Center in Earl’s Court. Sponsorship was provided by various property investors and landlord’s organizations including Platinum Property Partners, Velvoir, the Humber Landlord’s Association and the Residential Landlord’s Association among others.
Almost half of 25-34 year-olds in England now rent according to a recent House of Commons research report. The briefing assessing Government initiatives to extend home ownership claims that 48 per cent of the 25-34 year old age group now rent their homes up from 21 per cent in 2003-04. However, given the choice, the report states that 86 per cent of this age category would prefer to own their own homes rather than rent.
The housing crisis is particularly acute in London. According to Alan Holmans of the Cambridge Center for Housing and Planning, the house-price-differential between London and the rest of the UK has climbed to a post-war peak and is currently 85 per cent higher than the UK average. However, the differential between average London household incomes and the rest of the United Kingdom, is only around 32 per cent higher.
The scale of the housing crisis has lead to a series of proposals in recent years including Chancellor George Osborne’s announcement of a “Five Point Plan to increase home ownership” in his 2015 Autumn Statement and Spending Review. This included a commitment to build 400,000 affordable houses by 2020-21 among other measures. This was soon followed by the launch of the “Help to Buy London” scheme in February 2016 in recognition of higher housing costs in the capital.
The effect of buy-to-let landlords was also highlighted by the Chancellor as a potential exacerbating factor in house price inflation. Accordingly in his Summer 2015 Budget, the chancellor announced plans to restrict tax relief on landlords’ mortgage costs. This decision is currently being challenged by landlord’s organizations which have hired to the legal firm Omina Strategy, which was founded and chaired by Cherie Blair.
Moreover, in order not to penalize buy-to-let landlords with mortgages against those who buy additional properties in cash through restrictions in mortgage interest rate relief, the Chancellor also announced that a 3% increase in stamp duty which will be levied against purchases of additional properties. The Chancellor argued that the buy to let sector had had a disproportionate impact on the housing market as a whole, and that many buyers had not been affected by earlier tax changes, announced in the 2015 Summer Budget.
The lack of resources available to local authorities to deal with housing disrepair in the private letting sector was exposed yesterday in the House of Lords.
According to the Liberal Democrat Baroness Bakewell, housing complaints totaled 62,818 in 2012-13 which resulted in only 31,634 inspections by local authorities. Astoundingly, only 1,645 improvement notices were served over the same period. The most common categories of hazards and faults identified in inspections were: damp and mould, excess cold, crowding and space, falling hazards and fire. The powerlessness of many renters is exacerbated by out-of-date legislation whereby tenants can take action themselves only if their rent is less than £80 a year in London and £52 a year elsewhere.
These findings come as 11 million people now live in private rented accommodation in England, a figure which has almost doubled in the last decade and is set for further increases.
The Baroness claims that Parliamentary research indicated that 30% of private rented properties in England would fail the Government’s decent homes standard. This is almost double the 15% in the social rented sector. Also, despite having the lowest average property standards, the private rental sector is the most expensive housing option. Private renters now spend an average of 47% of their income on rent compared with 23% of the income of people with a mortgage and 32% of the income for those in the social rented sector.
The Baroness’ comments were made during a committee reading of the Housing and Planning Bill which would establish a database of rogue landlords and letting agents and strengthen the enforcement of pre-existing legislation in the private rental sector among other measures.
The Government has officially responded to a Parliament petition launched by the Residential Landlord’s Association. The petition seeks to challenge Chancellor George Osborne’s plan to reduce landlords’ ability to offset mortgage interest payments from their tax liabilities which were announced in the 2015 Summer Budget and Autumn Statement.
The petition titled “Reverse the planned tax relief restriction on ‘individual’ landlords” claimed that the Chancellor’s proposals to limit Mortgage Interest Relief for landlords operating as sole traders would unfairly impact their ability to conduct their business. Moreover the lobbyists claim that such restrictions are not denied to sole traders in other industries.
The Government responded officially after the motion obtained more than ten thousand signatures stating that it is committed to a fair tax system so it is “restricting tax relief landlords can claim on property finance costs to the basic rate of income tax.” Furthermore, the government asserts that the ability to reduce tax liabilities by offsetting mortgage interest and other finance costs against their property income is not available to ordinary homebuyers and those investing in other assets such as shares.
“By restricting finance cost relief available to the basic rate of income tax (20%) all finance costs incurred by individual landlords will be treated the same by the tax system. This recognizes the benefits to the economy that investment in property can bring but ensures the landlords with the largest incomes will no longer benefit from higher rates of tax relief.”
The government also states that the measures will only be introduced gradually over four years starting in April 2017 which will give landlords sufficient time to adapt to the new rules.
According to petition guidelines, a motion will be considered for debate in Parliament if it achieves over one hundred thousand signatures.