As we touched on in our recent article, the UK government is looking to introduce yet another level of bureaucracy and cost in the shape of a new redress scheme. Politicians are extremely good at milking a particular cause as a means of currying favour with voters. However, could the ever-growing cost of operating in the UK buy to let market backfire on the government?
Landlords cannot absorb increased costs
The introduction of an additional 3% stamp duty charge for second homes and buy to let investments hit the market but investors adapted. The tapering of mortgage interest relief was a subtle yet dagger blow to the heart for higher rate taxpayers. The cumulative impact of these two charges, not to mention the many before, has seen a significant increase in the operating costs of private landlords. Already operating on relatively thin margins many landlords have had no choice but to pass on the majority of the cost increases to tenants.
Capital gains hard to come by
In the past some buy to let investors would have used capital gains as a means of mitigating the increasing cost of operating in the buy to let market. This situation has changed over the last year or so in light of the troubling scenario emerging around Brexit. While many experts believe the UK property market is well-positioned for the future, with a strong backbone, there may well be short-term fluctuations as investors grow ever more concerned about Brexit. So, with significant property capital gains unlikely in the short term, more private landlords will be forced to pass on recent government charges.
HMOs and shared accommodation
Those who follow the UK buy to let market will be aware that there has been a growing move towards HMOs and shared accommodation. This has seen growing interest in the student market with the creation of purpose-built properties with high-quality shared facilities and private quarters. In many cases this has created an increased rental income for corporate buy to let operators which has slightly diluted the impact of growing costs. Whether corporate buy to let entities will show the same level of interest in single property buy to let assets is debatable.
Biting the hand that feeds you
It seems as though the government of the day, whether Conservative, Labour or a coalition, is determined to bite the hand that feeds it. Amidst the painting of private landlords as the devil incarnate let’s not forget there is a housing shortage in the UK. Private rental accommodation capacity has increased enormously in recent years but more properties are still required. However, if the UK government continues to increase costs, diminishing returns, how will they ever get anywhere near parity?
Are politicians really so naive when it comes to increasing the cost of those operating in the buy to let market. Do they really believe that private landlords can continually absorb the ever-growing cost of renting out property? A continuous underspend in the area of social housing adds further confusion with concerns of a lack of joined up policies. Do the authorities ever take a long-term approach to investment or is it simply a short-term approach to milking cash cows?