Are We Heading Towards a Housing Crisis?

By Danielle Hughes at 00:00

Things look set to become even more difficult for landlords in the UK. Amidst an evolving legal landscape, property licensing, stamp duty rises and immigration checks, landlords now have to battle against significant tax increases.

There is an ongoing Parliamentary Petition for the reversal of the planned tax relief restriction on individual landlords and unless another 48,098 people sign the petition in favour of a reversal before 27th January 2016, the likelihood is that the issue will not be debated in Parliament, and the plans will proceed as set out in Mr Osborne’s summer budget.

The consequences of the tax changes could potentially be disastrous for the buy to let market, both for landlords and tenants alike. The changes will prevent landlords from offsetting costs (i.e mortgage cost) against rental income, meaning that some may even have to pay tax where losses have been made.

This example from The Telegraph demonstrates how the proposed changes will affect landlords in practice, based on the assumption that a landlord pays 40% tax:

Today:
Your buy-to-let earns £20,000 a year and the interest-only mortgage costs £13,000 a year. Tax is due on the difference or profit. So you pay tax on £7,000, meaning £2,800 for HMRC and £4,200 for you.

By the year 2020:
Tax is now due on your full rental income of £20,000, less a tax credit equivalent to basic-rate tax on the interest. So you pay 40% tax on £20,000 (ie £8,000), less the 20% credit (20% of £13,000 = £2,600), meaning £5,400 for HMRC and £1,600 for you. Your tax bill has therefore gone up by 93%.*

If for example interest rates rise, this could lead to landlords making losses on their properties. Buy to let landlords will undoubtedly start to sell up and invest their money in more profitable ventures. This would lead to a decrease in the number of rental properties available. Those left in the residential rental market will have little option but to increase rent to offset their increased tax liabilities.

This begs the question of how an already struggling population will be able to secure affordable housing? The Guardian reported last week that rent arrears are already on the rise and the Association of Residential Letting Agents (ARLA) agrees that rent will only increase in 2016.

So with the future set for increased rent and decreased housing availability, Britain seems to me to be driving full steam ahead towards a housing crisis.

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Danielle Hughes

Danielle Hughes , Associate Solicitor

Danielle is an Associate Solicitor in the Dispute Resolution team at Kirwans, specialising in a range of civil, commercial and property litigation matters. Danielle manages her own caseload of claims under the supervision of the team as well as assisting senior members on a range of complex disputes. Danielle also conducts advocacy in the civil courts.

Her areas of specialism include contractual disputes, possession claims, charging orders, consumer issues, harassment claims, actions against the police, boundary disputes and debt recovery litigation.

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