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IMLA blasts ‘discriminatory’ landlord policymaking and calls for change

The government needs to change direction from its ‘discriminatory policymaking’ or the private rental sector faces a bleak future, the Intermediary Mortgage Lenders Association has warned.

The association hit out at talk of rent freezes from London and Manchester mayors Sadiq Khan and Andy Burnham, while it accused Scotland of favouring housing associations and purpose-built student accommodation providers over small landlords.

Mortgage costs have increased by 75.7% in the past year, while the cost of contractors and materials have also risen.

Landlords also have to cope with the restriction of mortgage interest tax, limiting tax deductions to the basic rate of income tax. There was also a reduction of capital gains tax for other assets but not for residential property in 2016.

Then there’s the upcoming Renters Reform Bill, which will abolish Section 21 evictions and introduce periodic tenancies as standard.

Writing in its ‘Navigating the Changing Landscape’ report, IMLA said: “Why would investors invest in a sector where they cannot recoup costs through higher prices?

“Why would investors invest in a sector that has clearly been singled out for regulations such as minimum EPCs when other sectors have been exempted?

“In Scotland it would appear that larger organizations with the clout to lobby government such as housing associations and providers of purpose-built student accommodation have been able to avoid regulations such as the current rent cap, despite having far greater financial resources than a typical small landlord and despite the fact that their tenants are typically in a more precarious financial position.

“While such discriminatory policymaking continues, the outlook for the PRS and the tenants who depend on it to put a roof over their heads will be bleak indeed.”

The report added: “The most extreme manifestation of this trend is the rent freeze that was imposed in Scotland and is now being advocated in England by Sadiq Khan and Andy Burnham. It is particularly perverse to impose such a freeze at a time when many landlords face spiraling finance and other costs.

“Such a rent freeze can protect some tenants from rent increases in the short term but at the long-term cost of making the PRS a thoroughly unattractive arena for investors to deploy their resources. As landlords fail to invest in or even exit the market in response to such price controls, those looking for new tenancies will be worse off than ever. So politicians risk exacerbating the housing crisis.”

As it stands the majority of landlords remain on low fixed-rate loans, but soon their interest rate payments will rise when they reach the end of their current fixed deals.

This is expected to put upwards pressure on rents, which already rose by 4.8% in the year to April (ONS), as well as 9.9% for newly agreed lets (Homelet).

The relatively sudden increase in funding costs is causing a significant proportion of buy-to-let landlords to fail affordability assessments when seeking to refinance loans.

Some may seek to exit the market altogether, while others may be obliged to sell some properties and re-balance the debt on their portfolios.

Kate Davies, executive director at IMLA, said: “Demand for rented housing is clearly high, and measures to increase tenant protections are important.

“However, the focus now needs to be on prompting increased investment in the sector and supporting landlords, whose operating costs risk becoming unaffordable.

“If we don’t get the balance right, the result will be higher rents, and lower availability of properties – both of which are bad news for tenants and landlords.”

Davies added: “The PRS serves some some 4.6 million households – the equivalent of 11 million people – and represents approximately 19% of the housing market. Maintaining the health of the sector is therefore essential if we are to manage the UK’s chronic housing shortage.

“Our report highlights the tough environment that landlords currently find themselves in and, more concerningly, the outlook for the PRS and tenants if policymakers’ approach to the sector doesn’t change.”

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