SO FERGUS and Judith Wilson have sold their 900-strong property portfolio for £250million to foreign and institutional investors. Is this the start of a BTL sell off in the UK thanks to George Osborne’s new tax rules?
Foreign investors buying, not first time buyers
Osborne introduced the tax laws to try and stop landlords competing with first time buyers. On the face of this large transaction, that has failed miserably. Not one of the 900 properties has been bought by a first time buyer, but by foreign investors (who is trying to dissuade) and big instituitions. Both are high on the wealthy scale and looking to rent the properties out, so in one fell swoop a British landlord has been swapped for a face less institution and foreigners. That doesn’t necessarily bode well for the tenants.
The price paid for the portfolio at £277,000 per property on average, does not suggest low rents either. I’ll be surprised if all tenants don’t get a rent raise within 12-months. So the tenants have lost out as well.
The Government will win here though, with plenty of tax paid as a result of the sale. The banks will get their loans back, but lose out on valuable interest payments.
And yes, I can see this happening across the UK, but on a different scale. Mortgaged landlords will sell their properties in fear of the new tax and interest rate hikes. Staying in the sector is simply too risky and not lucrative enough, especially if you are a 40% tax payer.
First time buyers still priced out
I don’t expect first time buyers to snap up these properties either. How can they when mortgage lending is so strict and deposits needed so high? I expect wealthy individuals with cash in the bank will step in and take over. They have no fear of the new tax laws because they don’t pay interest. So the wealthy will own more property and have more control over the rents – which inevitably will mean rises.
Some landlords will incorporate or start to buy in companies going forward. This is seen as a way of dodging the tax levies as interest and stamp duty can be offset as costs. But there are additional costs to running a business like this, such as corporation tax, dividend tax and accountancy fees. The Government will earn more tax and tenants will face rent rises to offset this.
Fergus and Judith Wilson have led the way and many more private landlords will follow. Rents will rise and the private rented sector will reject the DSS tenants in favour of higher earners and less risky tenants. First time buyers will find it just as difficult to enter the market. Wealthy and foreign investors can now have their pick of proven investments as home grown landlords are taxed out of the game.
Conservatives will lose voters
And I don’t expect many of the 2million or so landlords in the UK now will ever vote Conservative again. As for the 5million tenants who are about to be clobbered by higher rents, I doubt they will either.