Jeff PrestridgeMar 9 2017

Learn to love landlords

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Love later life. It is a beautiful sentiment that is currently being used by Age UK, a charity which does invaluable work in fighting the corner of the elderly.

I say, long may this charity continue to thrive with its mix of helpful advice and campaigns to combat important issues such as loneliness and good health in retirement.

It is a shame, therefore, to see that this government is making it more difficult for people to put themselves in a position where they can love later life.

It is doing this by steadily chipping away at our ability to build a portfolio of long-term investments that will see us through retirement.

Its clampdown on our pensions reminds me of John Wyndham’s The Day of the Triffids. Blinded by the fact that we get generous tax relief on our contributions (thank you Mr Hammond), we then fail to notice a series of measures introduced to stymie our ability to build retirement wealth.

The pension triffids are everywhere – in the form of the tapered annual allowance for high earners, a shrinking lifetime allowance (once £1.8m, now £1m) and a nonsensical money purchase annual allowance that could be set at £4,000 by the time the new tax year starts. 

Of course I say all this before this week’s Budget so forgive me if Mr Hammond has done something quite amazing to reignite the pensions savings habit so that we can all look forward to loving later life.

Property under siege

Yet pension deprivation is only part of the story. Making money from investing in property is now under siege.

In recent years, tens of thousands of Middle Englanders have turned to property to broaden their investment portfolios and generate a good income, now and into retirement.

They have become landlords and on the whole they have done very well out of it on the back of strong tenant demand, low interest rates, rock-bottom mortgage costs and continuing house price inflation. The result is a burgeoning private rented sector, comprising 5.2m households, double the size of 16 years ago. Recent research conducted by Paragon Mortgages indicates that the average loan-to-value stands at 37 per cent with average gross income standing at about 6 per cent.

A success story then; one we should be proud of as a nation. Financial empowerment and all that, while fulfilling an increasing need for rented accommodation. Something we should be encouraging more of.

But not this government. It has now got its claws into landlords and wants its pound (multi-million pound) of flesh, in the form of tax revenues. Since last April, as part of a five-point plan to help more people buy their first homes, it has applied a higher rate of stamp duty on purchases of buy-to-let properties. 

Draconian taxation

Worse is to come. Between this April and April 2020, the taxation of rental income will become more draconian. As a consequence, landlord profits will be squeezed. In some instances, profits will be turned into losses. Some buy-to-let investors will simply sell up and walk away from the sector.

It is a view shared by Professor David Miles, a former member of the Monetary Policy Committee and an eminent economist. At a buy-to-let debate a week ago organised by Paragon, he confirmed that the impact of the taxation squeeze on buy-to-let landlords would be dramatic. To stand still financially, many landlords would have increase rents by between 20 per cent and 30 per cent. He went on to criticise the government for discriminating against landlords in this way.

What I find most shameful about this tax assault on Middle Englanders is that it will hit amateur landlords hardest. Professional landlords will be able to escape the tax clampdown by setting up companies through which they can pass the rental income they receive on their investment properties. The setting up of limited companies is booming – up six-fold on a year ago. It is a route denied to most amateur landlords.

This government war on landlords is as ill conceived as the one it is waging on people using pensions to build a retirement war chest.

Although nothing is guaranteed in life, house prices are unlikely to implode in the near future – an argument put forward by Professor Miles at the conference. It is essential that a healthy private rented sector is allowed to prosper to offer accommodation to those (primarily the young) finding their way in the working world.

Rather than discourage buy-to-let investors, the government should be encouraging them. We have moved on from the days of Margaret Thatcher when home ownership was good and all other forms of housing were bad.

Home ownership is something we should aspire to. But the country – and the world – has moved on from the early 1980s. We need our amateur landlords more than ever.

Love later life. So, Mr Hammond, love our army of amateur landlords. Stop making them the villains for the ills of the housing market.

Jeff Prestridge is personal finance editor of the Mail on Sunday