Landlords on fine form in The Times:
Landlords have threatened to raise their tenants’ rents if George Osborne uses the budget to end tax perks for buy-to-let borrowers.
1. We all know perfectly well that they can't, but if they could, why don't they do it now? Answer: because they are already charging as much as they can get.
2. They also know perfectly well that they can't - because if they could simply 'pass on' the higher tax bills then they wouldn't really care about the higher tax bills.
Compare them with the cigarette industry, they don't particularly like tobacco duty, but as supply is elastic and demand is price-insensitive they genuinely can pass on 99% of tobacco duty onto smokers, leaving their net profits pretty much untouched. Ditto petrol.
3. A tax is the opposite of a subsidy. How would landlords respond if Georgie Boy said "OK, keep your interest deduction, instead I will get that £5 billion a year back by halving the Housing Benefit you get". It's more or less exactly the same thing - but we know that if Housing Benefit were halved then rents would go down, however slightly.
4. They never say what non-leveraged landlords would do. Would they keep rents constant while leveraged landlords try to increase them? How's that going to work? Suffice to say, what would happen is that over-leveraged landlords, the highest cost operators, would sell up so we could argue that as a result, the average interest paid by landlords goes down so rents would go down (using their twisted and circular logic back at them).
5. In particular, it will be higher earning tenants who now buy the homes up for sale, meaning that remaining tenants have lower average incomes and so rents will come down to match.
6. If their logic were correct, they might as well call on the Chancellor to make all rental income entirely tax free.
In a letter to the chancellor, seen by The Times, the National Landlords Association warned that an assault on buy-to-let would damage the economy and work against first-time buyers.
Highly leveraged buy-to-let are a threat to the economy - even the Bank of England says so - not an assault thereon, we all know that as well, and how the f*** do they work out that squeezing a few buy-to-let landlords out of the market would not be interests of first-time buyers, i.e. the sitting tenants to whom the exiting landlords sell?
Landlords enjoy tax breaks that cost the exchequer about £5 billion a year, according to HM Revenue & Customs, the equivalent of more than a penny on the basic rate of income tax.
Yup. These greedy fuckers are 'investors' not businesses when it comes to grubby little taxes like National Insurance and VAT, so unlike proper businesses they don't pay those. But unlike proper investors who invest in shares, they can deduct their interest expense from taxable income... just like proper businesses. Best of both worlds, that is called. And then there's the 10% wear and tear allowance/giveaway.
Buy-to-let borrowers are allowed to deduct the cost of mortgage interest payments from their tax bill, a perk that makes buying property cheaper for landlords than for first-time buyers.
No, false comparison. Owner-occupiers pay less tax on their homes than landlords; strictly speaking, owner-occupation gets the most tax breaks. But at least an owner-occupier is only getting it on one home.
The fair comparison is with people who invest in shares (who can't claim a deduction for interest paid, see above). A perfectly sensibly policy, because it discourages credit-fuelled speculation in shares, which is what caused the 1930s Depression.
The letter from the NLA states: “...Landlords would be left with no other option than to recoup their increased costs through higher rents.”
Option 1 - accept lower net returns, option 2 - sell up. And that is the more likely one.
As a counter-point to all this, there are some interesting facts and figures in This Is Money:
* Average interest rate paid on BTL mortgages down from 5.77% to 4.69% over the last three years - so if tax relief for interest were withdrawn, the effective interest rate paid would be the same as three years ago (i.e. 5.77% less 20% tax relief = 4.69% without tax relief). Did landlords reduce their rents to 'pass on' the interest saving..?
* Nope. Average rents up from £660 to £734 over the last three years. If their logic were correct, then rents would have fallen to about £600.
Tuesday, 7 July 2015
Landlords on fine form in The Times:
My latest blogpost: "Nobody move, or the puppy gets hurt!"Tweet this! Posted by Mark Wadsworth at 17:09