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Budget Targets Landlords

Budget Targets Landlords

Was The Budget Really That Much Of A Surprise?

The first Conservative budget for 20 years was expected to be good for Britain; however, the reality was not what many landlords wanted to hear.

The decision to target private rental sector landlords and property investors wasn’t too much of a surprise, as the Government can plainly see where the profits are being made and they, like all the rest of the political parties, want a slice.

On the run up to the general election in May 2015 every other political party openly stated that they intended to target landlords, whilst the conservatives remained quiet, prompting a few political commentators to predict that policies would be introduced surreptitiously that would effectively put money into Government coffers.

That’s exactly what we got last week!

The key points that affect landlords from George Osborne’s budget statement include:

Benefit Cap Lowered To £20,000 (GBP)

The total amount of benefits a family can receive over the course of a year has been reduced from £26,000 (GBP) to £20,000 (GBP) – (£23,000 in London).

This is a particular concern for landlords as any loss of income from the reduced benefit cap will hit tenants’ housing benefit first.

Many private rental sector landlords are now worried about increased rent arrears and the probability that many areas of the UK will become unaffordable for large families to live in.

The Government have said that they will allocate £800 Million (GBP) of discretionary housing payments for councils to help affected tenants.

Housing Benefit Abolished For Under-21s

From April 2017 the automatic entitlement to housing benefit for 18- to 21-year-olds will be scrapped for new claimants.

Exceptions will be made for vulnerable young people, including those unable to return to their family home and claimants who were in work for six months prior to making a claim.

Working-Age Benefits Frozen For Four Years

The freeze means Local Housing Allowance (LHA) will fall further behind inflation as the chancellor seeks to stop the housing benefit bill soaring with increasing rents.

Buy To Let Landlord Mortgage Relief Cut

In a £2bn tax bombshell, from April 2017 landlords will no longer be able to claim tax reliefs worth 40% or 45% of the interest payments on their buy-to-let mortgages. Instead, the maximum tax relief will be set at 20%, although the change will be introduced over a four-year period.

Effectively it looks as though 40%/45% taxpayers will only get around half of their mortgage interest (and arrangement fees) offset against their rental income.

20% taxpayers shouldn’t see much change as all mortgage relief will be limited to the basic rate of income tax.

The effect of this will be staged meaning that

  • 25% of this extra tax will be payable on profits made in the April 2017 – April 2018 tax year,
  • 50% in April 2018 – April 2019,
  • 75% in April 2019 – April 2020
  • 100% in April 2020 – April 2021 meaning that the full effect of this change won’t be felt until the January 2022 personal tax bill is due.

Despite the staged introduction many PRS landlords have warned that this could see costs passed on to tenants in the form of higher rents.

Wear And Tear Allowance Tightened

Landlords will have to prove they have improved or maintained their rental property before they can deduct the costs from their taxed profits.

Currently, landlords can deduct 10% of the rent from their profits to account for wear and tear regardless of whether they have improved the property or not.

From April 2016 this is set to be replaced by a new system that only allows landlords to get tax relief when they replace furnishings.

Changes To Non-Domicile Rules

This change in entitlement could affect property investment and buy to let, particularly in London as people born in the UK to parents domiciled here will not be able to inherit non-dom status and people will not be able to have permanent non-dom status.

Anyone resident in the UK for 15 of the last 20 years will have to pay full UK tax.

Rent A Room Tax Free Income Threshold Raised

After 18 years, the Rent A Room tax free income threshold is being raised to £7,000 (GBP) per year. There are an estimated 19 million empty bedrooms in owner-occupied properties in England alone. Freeing up just 5% of those rooms would accommodate 1 million people. This move will also fuel the growth in short, informal lets such as the type offered by Airbnb and the like.

The tax reliefs that have been cut by Mr Osborne were hugely important for landlords in being able to offset other astronomic property costs such as lettings agent fees, landlord insurance, maintenance and repairs costs, as well as council tax.

It is still early days and we need to see how HMRC will implement some of these changes, because they may also try to find additional ways to stop property investors and landlords from profiting from property, however, there are ways to get around some of the changes introduced, including:

Tax Relief

Limited (Ltd) companies appear to be excluded from the mortgage relief cuts meaning that property investors and landlords could potentially look to purchase their future investment properties through Ltd companies.

Buy To Let mortgage lenders could become more open to this method of purchasing properties similar to the way that commercial lenders already facilitate.

Landlords who already own properties personally or in a Limited Liability Partnership (LLP) may want to transfer them to a Limited (Ltd) company; however, they will be subject to capital gains tax and stamp duty.

An alternative method to transfer property ownership whilst retaining the current mortgage would be by using a deed of trust, which would transfer the beneficial ownership to a Ltd company. A good solicitor can draw one of these up for you.

Property investors and landlords could also switch their focus slightly and purchase more properties that need refurbishments.

As long as the property is in a habitable condition when purchased but still needs redecoration and comes into the lettings market before the refurb is done, most repairs such as kitchens, bathrooms, paint etc can be offset against all property income from a whole rental portfolio.

Bird_OldLadyWe will always try to keep our sector alive and rents affordable as we are providing services to people who need them, we don’t set out to rip people off, we’re not politicians, we are the ones who take the financial risks, we’re the people who provide housing and it’s our name on the deeds not yours.

You see Mr Osborne, whilst you may think that you are being clever and are tapping in to wealth generated by other people’s hard work and risk taking, well, we as landlords won’t be beaten!

RLA Hit Back At Rent Control Calls

RLA Hit Back At Rent Control Calls

Rent Controls Are Not The Answer
To The UK Housing Shortage

The Residential Landlords Association (RLA) have hit back at politicians and housing and homeless pressure groups who are openly calling for rent controls in the UK’s private sector by claiming that private sector rents are falling in real terms following analysis of the official English Housing Survey (EHS).

The English Housing Survey (EHS) results are taken from a continuous survey conducted by the Department of Communities and Local Government (CLG) and show that average private sector rents increased by just £10 from £153 to £163 (GBP) per week in 2014, representing a rise of 6.5%.

In contrast, average weekly rents in the UK’s social sector increased by more, with weekly rental prices increasing 25.4%, rising by £18 from £71 to £89 (GBP).

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New LHA Rates for 2014 -2015 Published

New LHA Rates for 2014 -2015 Published

Local Housing Allowance (LHA) Rates Change In April

Every year the Government publish Local Housing Allowance (LHA) rates that are periodically reviewed and payment levels in some UK regions may change without notice.

The April 2014 – March 2015 LHA rates have now been published and the revised list makes interesting reading for landlords and letting agents who are willing to accept tenants claiming benefits.

UK private rental sector landlords are able to ensure rental property profits by allowing their properties to be let to tenants claiming housing benefit (HB), with local authority rental payments exceeding buy-to-let mortgage payments.

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More Tenants Face Eviction Over Bedroom Tax

More Tenants Face Eviction Over Bedroom Tax

Bedroom Tax Blamed For Increasing
Eviction Numbers

The apparent shortage of 1 and 2 bed properties in either the social or private rented sector means that more tenants are facing eviction for non-payment of the Bedroom Tax because there are no suitable properties available for them to move into.

Mark Rogers, Chief Executive of the Circle Housing Group, one of the UK’s largest housing associations managing 65,000 residential properties, has warned of a rise in tenant evictions because of the government’s new under-occupancy penalty, more commonly known as the bedroom tax.

Mr Rogers said “It is inevitable that there will be a long-term increase in the number of people failing to pay their rent as there are simply not enough vacant smaller properties for people affected to move into to avoid the charge. Circle Housing Group are offering tenants financial advice and encouraging those affected to look at a house exchange scheme, which has seen a 26% rise, but an increase in evictions is also to expected. The under-occupation charge is hitting a lot of people very hard, as you would expect. They are losing money and by the very nature of being on benefits, they are on very low incomes. People can’t down-size because there aren’t enough properties for them to move in to. We did a survey and one finding was that if you let every single bedroom that came vacant, and you housed an under-occupier there, it would take eight years to clear the backlog. Our view is that  for the vast majority the transfer system is untenable. We won’t evict someone if we can’t find a solution for them. If they don’t take that solution that we offer, then we will evict, but we see it as our job to make sure we don’t go down that route. If that happens we see it as a failure; it is expensive to the local authority, it is expensive to the person, traumatic for the person, often not good for the community. We see evictions generally as a last resort. From our perspective I think as time goes on they will go up a little but our plan is that by using our solutions we minimise the impact.”

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New Report Backs Welfare Reforms

New Report Backs Welfare Reforms

Research from an independent consortium led by the Centre for Regional Economic and Social Research (CRESR) at Sheffield Hallam University covering the impact of recent Housing Benefit reform in the private rented sector was published on Monday 13th May.

The report examined the attitudes of tenant claimants and private rented sector buy-to-let landlords in 19 areas across the UK, following the Housing Benefit and Welfare Reforms that were ordered by the coalition Government in April 2011.

Lord Freud, minister for welfare reform said:”Reform of Housing Benefit in the private rented sector was absolutely necessary to control a system that saw spending double over a decade to more than £20 Billion (GBP) a year. However, it is also necessary to monitor and follow the reforms to help us build and learn for the future”.

Ian Cole, Professor of Housing Studies at the Centre for Regional Economic and Social Research (CRESR), said:”This report provides findings from in-depth interviews undertaken with tenant claimants, landlords and housing advisors in early stages of the implementation of the reforms.

The CRESR also conducted separate analysis of all UK Housing Benefit claims to provide an insight to the initial impacts of the welfare reforms across the UK.

The CRESR report finds:

  • Large numbers of tenants claiming benefits have not been forced to move out of rental properties during the study
  • In 120 UK local authority areas, overall reductions to a tenant’s Housing Benefit / Local Housing Allowance (LHA) have been averaged at £5 (GBP) or less
  • The extra £130 Million (GBP) of support from the Department of Work and Pensions (DWP) to local authorities to help tenant claimants with Discretionary Housing Payment (DHP) has assisted tenant claimants well where Housing Benefit / LHA reductions have been greater than the national average.

The consortium is led by Ian Cole, Professor of Housing Studies, from the Centre for Regional Economic and Social Research (CRESR) at Sheffield Hallam University. Other key team members included Peter Kemp of Oxford Institute of Social Policy, Carl Emmerson of the Institute for Fiscal Studies (IFS) and Ben Marshall from IPSOS-MORI.

The Centre for Regional Economic and Social Research (CRESR) at Sheffield Hallam University is one of the UK’s leading academic research centres specialising in social and economic regeneration, housing and labour market analysis.

The consortium’s research started in April 2011 and will run until this Autumn (2013) and covers the effects of:

  • Setting Local Housing Allowance (LHA) rates from the median to the 30th percentile of local market rents from April 2011
  • Capping Local Housing Allowance rates by property size from April 2011 to:
    • £250 per week for 1 bed
    • £290 per week for two bed
    • £340 per week for three bed
    • £400 per week for four bed or more
  • The increased Government contribution to the Discretionary Housing Payment (DHP) budget
  • Increased powers of local authorities to make direct payments to landlords to support tenant claimants in order to retain and secure tenancies in the private rental sector.
  • Allowing an additional bedroom within the size criteria used to assess Housing Benefit claims in the Private Rented Sector where a disabled person, or someone with a long-term health condition, has a proven need for overnight care and it is provided by a non-resident carer who requires a bedroom.

The full research ‘Monitoring the impact of changes to the Local Housing Allowance system of Housing Benefit: Interim report’ is available here: Monitoring the impact of changes to the Local Housing Allowance system of Housing Benefit: Interim report

The Scottish Government along with the Department of Communities and Local Government (CLG) and Welsh Assembly Government are working in close partnership with the DWP and each contributing to the costs of the review.

Further CRESR reports are expected to be published in early 2014.

Landlords expected to do UK border agency's job for them

Landlords expected to do UK border agency’s job for them

Private landlords are set to become an extra line in UK Border Control as they will be legally responsible for ensuring that they only let rental properties to people allowed to be in the UK under immigration laws announced in the Queen’s Speech.

This means that Private Rental Sector (PRS) and social housing landlords will have a responsibility to make sure their tenants are in the country legally

Over 3 million buy-to-let landlords are rental property owners in the UK private sector and will be responsible for checking the immigration status of all potential tenants, with fines running into thousands of pounds for those breaking the law.

Employers will also face more substantial fines for employing on illegal immigrants.

It appears that UK landlords and employers are expected to police the immigration system as unpaid members of the UK Border Agency.

Landlords are being given additional responsibility with no recompense other than the threat of heavy fines for failure to comply. Why are we expected to do the UK Border Agency’s job for them when they are paid handsomely for failing to do the job they are employed by the Government to do?

Does this mean that Landlords will be given a financial incentive to turn informant?

I don’t think so…

The new measures are included in an amended Immigration Bill will also limit the ability of European migrants to claim UK state benefits and ensure that the right to residence in the UK on the basis of family commitments is not abused by criminal elements. The UK judicial system will be expected to balance the nature and seriousness of the crime committed against the right to remain resident in the UK.

Temporary migrants will be charged for use of NHS services and only those who have lived in an area for at least two years will qualify for social housing. Regulations will also be amended to ensure that European immigrants cannot claim benefits for more than six months if they do not actively seek legal employment and show they have a genuine chance of obtaining work.

The legislation has been drawn up as the Coalition Government struggles to contain the electoral threat posed by the UK Independence Party (UKIP), which has hard-line immigration policies.

The details of how the measures will be implemented will be set out later in the year. The plans will be the subject of a formal consultation in the coming months.

Ministers expect the legal requirements on landlords will affect those letting rooms in houses of multiple occupancy (HMO) properties. However, the measure will be universal and it will be the responsibility of all landlords to seek copies of passports and appropriate visas.

It is unclear how landlords are supposed to verify the authenticity of documentation, as many employers have already discovered to their cost since the tightening of employment rules surrounding immigrant workers, as falsified information has no way of being checked and is only up to the diligence of the employer to ascertain the true identity of their employees.

The limit of the financial penalties set to be levied on landlords who fail to comply is also yet to be decided but is expected to be severe and may run into thousands of pounds.

The ‘Bedroom Tax’ – Under Occupancy Ruling

Changes will be made to Housing Benefit under the UK Government’s Welfare reforms which will come into effect from 1 April 2013 which will mean tenants claiming benefits will receive less benefit towards the cost of the rent.

If there is one spare bedroom in the rental property then the Housing Benefit will be cut by 14% of the cost of the rent. If there are 2 spare bedrooms then the Housing Benefit will be cut by 25% of the cost of the rent.

The new bedroom tax rules mean that tenants in social housing will see their benefit cut if they have spare rooms. These rules even apply to those not on benefit, they will now face charges of around £13 for one spare room and £22 for 2 rooms.

Under the new government rules, one bedroom is allocated for:

  • A couple.
  • A person who is not a child (aged 16 and over).
  • 2 children of the same sex up to the age of 16.
  • 2 children who are under 10.
  • Any other child, (other than a foster child or child whose main home is elsewhere).
  • A carer (or group of carers) providing overnight care.

What it could mean for your tenants

If your tenants are affected by these changes and their Housing Benefit doesn’t cover the cost of the rent, the tenant is expected and legally obliged to pay their landlord the balance.

These welfare reforms will instantly affect social housing tenants, however, private rental sector (PRS) tenants won’t be affected by this change at the present time, but it will happen.

Use the link to the welfare reform calculator to see how your tenants could be affected – Welfare reform calculator

Preparing your tenants for the changes

As a landlord you may wish for your tenants to consider:

  • Talking to you – Re-negotiate a rent reduction to a level which is more affordable
  • Opening a Credit Union account so that rental payments can be made automatically without the tenant having full access to the whole proportion of their benefit payments.
  • Get a job to replace their benefit income.

Housing Benefit will be paid direct to people of working age through Universal Credit. This means that they will have to make arrangements to pay the full rent on time every month directly to their landlord.

This will start in October 2013 for all new claims, with existing claimants being moved onto ‘Universal Credit’ from April 2014.

Universal Credit is a new means-test benefit for working age people. It will be a monthly payment paid into a household bank account that will be generally phased in from October 2013, however this will be trialed by certain local authorities including the City of Salford from April 1st 2013. It will first be introduced for new claimants and for people whose circumstances have changed resulting in a change to their benefits.

It will replace lots of benefits that your tenants may currently receive, including: Housing Benefit, Local Housing Allowance, Working Tax Credit, Child Tax Credit, Income Support, Income based Jobseeker’s Allowance and Income-related Employment and Support Allowance.

How It Will Affect Your Tenants

When the changes affect your tenants:

  • Tenants may receive less benefits resulting in a shortfall in income leading to financial struggles.
  • Tenants will be paid benefits on a monthly basis, direct to their bank account.
  • Universal Credit payments will include the Housing Benefit payment which will be paid directly to them even if they are still in rent arrears or are considered vulnerable
  • There may be a risk of tenant rent default and this needs to be watched out for and action should be taken  to recover the rent immediately.

Universal Credit will not work say landlords

Private landlords have already rejected the Government’s welfare reform plans for housing benefit, before that have even been implemented, stating that there will not be enough private rented sector (PRS) properties available to rent.

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Government’s Own Watchdog Warns Ministers Over Housing Mayhem

There will be a huge shortage of affordable Private Rented Sector (PRS) property for tenants claiming housing benefit if the Government Welfare reforms go ahead in the spring of 2013 as currently planned.

Welfare reform could lead to more Tenant Evictions

Welfare reform could lead to more Tenant Evictions

The warning has come from the Government’s own spending watchdog, the National Audit Office and has been backed by the British Property Federation (BPF), which says ministers should take action to stop UK Private Rented Sector (PRS) housing becoming unaffordable to tenants claiming benefits.

The National Audit Office says the danger comes from Local Housing Allowance (LHA), which is paid to benefit tenants in private rented accommodation, being calculated in line with the Consumer Price Index (CPI) rather than local market rent inflation.

The National Audit Office says this could lead to a divergence between local area rents and benefits.

The British Property Federation reckons that Government ministers are aligning rents with the price of sausages.

By 2017 the National Audit Office warns that 48% of all UK local authorities could expect to have double the number of benefit applicants, than at present, looking for two-bedroom properties that they will not be able to afford.

Tenants currently claiming benefits may face financial hardship or even eviction when the proposed changes come into force.

From April 2013, the Government is set to change the way LHA increases are calculated, shifting its sums away from the 50th percentile of local market rents to either the Consumer Price Index or the 30th percentile of local market rents, whichever is the lower.

But knowledge among tenants about the proposed housing benefit changes is minimal, warns the report. Surveys of tenants living in private rented sector properties show that 87% know nothing or very little about the changes.

The report, ‘Managing the impact of Housing Benefit reform’, makes a series of recommendations, in particular that the Government should increase awareness of housing benefit and Universal Credit changes, particularly among those living in the private rented sector. The report also underlines that the National Audit Policy only analyses policy impact, but makes no comment on the policy itself.

The British Property Federation said the Government cannot ignore this report. Policy director Ian Fletcher said: “Since the cap was announced, we have expressed concern that the measure will rapidly and relentlessly erode what Local Housing Allowance will be for. This is because market rents have historically risen with earnings, rather than the basket of goods such as sausages and net curtains.”

The full report is here:http://www.nao.org.uk/publications/1213/housing_benefit_reform.aspx

The Residential Landlords Association (RLA) say that cuts made to local housing allowance payments by the government last year have left many landlords with tenants financially struggling to make ends meet.

However the proposed changes to the way in which LHA payments are due to be made, come into force in 2013, will leave more private sector landlords who choose to rent to LHA tenants even more out of pocket.

At present private landlords who have LHA claimants that fall more than 8 weeks into arrears in terms of rental payments can apply to have future LHA payments made directly to them, cutting out the possibility of further arrears.

As of 2013 though this direct payment option will be taken away from UK landlords and it is this change that the RLA has criticised.

Asked for his views on the proposed changes, Richard Jones, policy director for the RLA, said that “The government approach is flawed, and there will be a much higher level of arrears, an unwillingness of landlords to house benefit claimants (at a time when there is huge pressure on social housing), increased unwillingness by banks to lend for this kind of property, much higher levels of tenant evictions and much greater degree of homelessness. Although the objective of helping tenants to manage their financial affairs is in isolation a laudable one, the Government has wholly failed to appreciate the consequences of this.”

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