Partner Article

How responsible landlords are being “strangled” by red tape

Smaller landlords in the North East are being squeezed out of the property industry and being put off from making any further investments in the sector, at the same time as costs are also increasing for tenants at an alarming rate, due to the Rentals Reform Act.

That’s what David Lamb, professional landlord and owner of Orange Sales and Lettings based in Billingham says he is seeing, through his window into the lettings world.

Orange Sales and Lettings manages almost 1,000 properties and David personally owns 47, enabling him to support other landlords from the perspective of someone who has been a property investor himself for more than 20 years.

David says there is now too much “red tape” for smaller landlords, and the costs and the bureaucracy introduced by the Rentals Reform Act are taking their toll, with costs ultimately being passed down to tenants or smaller landlords selling their portfolios to larger landlords or corporations.

“I am seeing a lot of landlords with smaller portfolios or single properties leaving the industry because of the red tape, bureaucracy and associated costs,” he says.

“This is because the costs involved in being a compliant landlord are now huge compared to what they used to be.”

David highlights that while individual landlords are technically still taxed on rental profits  - rental income minus allowable expenses like maintenance, insurance, and agency fees - Section 24 of the Finance Act 2015 means individual landlords cannot deduct mortgage interest or finance costs from their rental income, before calculating tax.

Instead, they receive a restrictive 20% tax credit. For higher-rate taxpayers, this means they pay tax on "profits" artificially inflated by their mortgage costs.

In highly leveraged portfolios, this can result in a tax bill that exceeds actual net cash profit - effectively functioning like a tax on turnover.

“To some landlords with one to five properties, it’s not worth it anymore,” he says.

“The Government has just rolled out the landlord database, which is another cash grab, as they are charging everyone £65 per property per year to be a landlord database.”

The idea of the database is to provide the Government with information on all properties that are rented out across the UK – but David says they already have that information in other forms.

He said: “What the Government don’t realise – or they do realise but are carrying on with this regardless – is that the person who absorbs these costs is the end user and landlords are being forced to pass this on to their tenants.

“It’s the same way that a builders’ merchant experiencing a cost increase in materials passes on those costs to builders and they pass those onto their customers.

“All these extra costs are building up for people at a time of great economic uncertainty.”

David says he works with a wide range of responsible landlords who are keen to keep costs as low as possible for their good tenants – but that is now becoming impossible.

He adds: “We currently have a housing crisis in the UK and stock within the rental market is becoming shorter and shorter.

“I feel as if the Government is strangling landlords and making it harder for landlords, which in turn is making it more difficult for people to find affordable housing options.

“Currently, we are seeing an increased amount of applications for the accommodation we are renting out – there is currently a huge demand for every rental property.

“It is a difficult time for landlords – but also a difficult time for tenants.”

Visit  www.orangesalesandlettings.co.uk for more information.

This was posted in Bdaily's Members' News section by Sarah Walker .