The next government must level the playing field between landlords and first-time buyers

Andy Knee

May 17, 2017

Andy Knee (pictured), chief executive of LMS, examines how unfair competition with landlords has been harming first-time buyers’ attempts to take their first steps on the housing ladder

One of the greatest problems with the housing market at present is limited stock. There are not separate markets for first-time buyers and buy-to-let landlords. Both groups are trying to buy exactly the property.

In recent years, investing in property as a landlord has been a more attractive option than buying as an owner-occupier. Landlords enjoyed tax relief on mortgage interest payments on a scale equal to the country’s collective bill for housing benefit.

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This meant landlords held an unfair advantage over first-time buyers looking to purchase the same stock. While we instinctively understood this, it was never measured. However, we can quantify this through the change in proportion of purchases made by the two groups over the past few years, as displayed in the Council of Mortgage Lender’s (CML) monthly lending trends data.

In 2010, there was over five times more lending to first-time buyers, compared to buy-to-let landlords. Over the next five years, this dropped considerably. In 2011, there was only 3.8 times as much lending to first-time buyers, which fell to 3.7 in 2012, then to 3.6 in 2014. Finally, in 2015, there was just three times more lending to first-time buyers than landlords.

That unfair competition is also reflected in trends in the ratio of remortgaging. Historic data from the LMS Remortgage Report shows that, in 2010, the ratio between owner-occupiers and buy-to-let landlords was 1.7. But by 2016, this had fallen to 1.5 – further evidence of the growing significance of buying-to-let as the segment expanded faster than owner-occupiers.

However, in the last year, the pendulum has swung too far in the opposite direction. Landlords are being penalised far too harshly – the Government has pulled the rug from under them.

April 2016’s changes to the tax system have placed landlords at a massive disadvantage.  For example, changes to Stamp Duty Land Tax forced landlords to pay higher rates of tax on additional residential property purchases than in previous years as shown in the guidance documents in HM Revenue & Customs.

The proportion of purchases made by first-time buyers compared to that made by buy-to-let landlords is slowly reversing as the CML data highlighted, from 3.0 in 2015, increasing to 3.7 in 2016.

But the government hasn’t really improved the lot of first-time buyers. They remain massively disadvantaged as they struggle to save for enormous deposits. Many are relying on the “Bank of Mum and Dad” to purchase their first home. Recent research by Cebr highlights that the “Bank of Mum and Dad” will lend £6.5 billion in 2017, the equivalent to a top ten mortgage lender.

The incoming government must level the playing field between buy-to-let landlords and first-time buyers. A starting point would be to ensure that more first-time buyers can get onto the property ladder without needing financial help from their parents, by increasing LTV ratios.

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  • Barry

    A surprisingly uninformed comment from the CEO of LMS. I would assume therefore that Mr Knee doesn’t want the mortgage business of Buy to Let Landlords.

    You cannot compare FTB with Landlords they’re chalk and cheese one is a consumer the other is a business. Using his logic every business has an advantage over consumers because they can reclaim their legitimate business expenses (which is what interest on a business loan/mortgage is).
    Landlords because they are a business have to pay CGT upon sale of a property, Home-owners do not pay CGT on their principle residence. Landlords have to pay tax on their profits, home-owners can let a room and not have to pay tax on the first £7,000 of income,
    Home-owners do not have to abide by in excess of 150 rules and regulations.

    Independent research findings show FTB only compete with Landlords in 3% of sales, FTBs do not buy large properties for conversion into flats or HMOs, they don’t bring derelict properties back into use. Even before recent tax hikes s.24 aka #TenantTax and 3% SDLT surcharge research by the IFS and LSE stated Landlords where taxed more heavily than owner occupiers, and where the highest in the world. Where does Mr Knee get his data from?

    Unfair competition is taxing private Landlords substantially higher than corporate Landlords or unencumbered Landlords.
    Unfairness is charging tax on fictitious profit at rates that can be in excess of 100%. Would Mr Knee feel is was fair to tax his business but have to exclude all salaries from the calculation of of the businesses profits? Thought not.

  • Kathy Miller

    Is he really the chief executive of LMS
    Seems he has soaked up all the crap from government. Disappointing. You would have thought he would know the difference. BTL is a business and I also note he says landlords were getting more from mortgage relief than that paid in benefits. It is the biggest cost a btl landlord has.
    But watch this benefit cost because b L landlords are not buying and many will sell. The benefit bill will rocket with homeless people in BB
    He sounds very anti landlord. He’s not content that ftb are already highly leveraged but suggests it goes higher.
    Is he mad when the market drops they will all be negative equity and repossessed

  • forumula_freddy

    All that is needed for investors to exit and to leave the market to first time buyers is to one word, “cryptocurrency”.

  • Barry

    A surprisingly uninformed comment from the CEO of LMS. I would assume therefore that Mr Knee doesn’t want the mortgage business of Buy to Let Landlords.

    You cannot compare FTB with Landlords they’re chalk and cheese one is a consumer the other is a business. Using his logic every business has an advantage over consumers because they can reclaim their legitimate business expenses (which is what interest on a business loan/mortgage is).
    Landlords because they are a business have to pay CGT upon the sale of a property, Home-owners do not pay CGT on their principle residence. Landlords have to pay tax on their profits, home-owners can let a room and not have to pay tax on the first £7,000 of income,
    Home-owners do not have to abide by in excess of 150 rules and regulations.

    Independent research findings show FTB only compete with Landlords in 3% of sales, FTBs do not buy large properties for conversion into flats or HMOs, they don’t bring derelict properties back into use. Even before recent tax hikes s.24 aka #TenantTax and 3% SDLT surcharge research by the IFS and LSE stated Landlords where taxed more heavily than owner occupiers, and where the highest in the world. Where does Mr Knee get his data from?

    Unfair competition is taxing private Landlords substantially higher than corporate Landlords or unencumbered Landlords.
    Unfairness is charging tax on fictitious profit at rates that can be in excess of 100%. Would Mr Knee feel is was fair to tax his business but have to exclude all salaries from the calculation of the businesses profits? Thought not.