Government Panel Debate | Landlord Investment Show March 2019 - Nova

Government Panel Debate | Landlord Investment Show March 2019

Andrew: Welcome to this government panel. My name is Andrew Neil. I’ll be chairing this panel. We put together a very strong panel for you. There’s a lot to discuss. Paul Mahoney is here on my immediate left. He’s Founder and MD of Nova Financial. If you’ve founded something, you can make yourself Managing Director. Why didn’t you make yourself Chief Executive.

Paul: Maybe I’ll add that on.

Andrew: We’ll see what I can do. Tony Gimple is the found of Less Tax 4 Landlords.

Tony: That what it says on the team.

Andrew: What title did you give yourself?

Tony: Just Director. That’ll do.

Andrew: Just Director?

Tony: Yeah.

Andrew: Very well. Sarah Davidson is the Knowledge and Product Editor at Mail Online. Is that general knowledge or property knowledge?

Sarah: Property Knowledge and Personal Finance.

Andrew: Very well. And Ian Duncan Smith, former leader of the Conservative party, now prominent Brexiteer in Parliament, as well as former Secretary of State. Is it working pensions [inaudible 00:01:02]. They haven’t changed the name so far?

Ian: Not yet, not yet.

Andrew: Good, saved us some money on the rebranding cost of that. Give a round of applause to our panel and welcome them here. But it’s not just the panel that’s going to do work this morning. We have roving microphones. I want to bring the audience in from the start put your hand up and on topic feel free to intervene and ask some questions. If you make statements you will be cut off. Remember questions end in one of these things and as soon as you get to one of these things the better. But I want this to be an interactive panel. So let’s get underway. It’s dead on 10:00, we’re finishing at 11:15 dead on as well since I’m on air on BBC2 at 12:15. So I just hope Boris’ bike lanes don’t get in the way as I dash across London back to Westminster. Let’s just go before we get onto some specific property matters, let’s just deal with the elephant in the room right away. Ian Duncan Smith, if the Prime Minister brings back her Brexit deal next week for a third vote, will you vote for it?

Ian: Well, I want to see if she gets any changes. If she doesn’t get any changes, the deal is exactly the same as before.

Andrew: There will be no changes. That’s it. What you see is what you get.

Ian: Yeah, well, that’s … I’ve so far declined to give her any support for that particular deal because I think that at the end of the day, it traps us in something which I don’t believe people voted for, which was to be locked into a customs union and aligned with the single market. So all of the upside of being out, which is to make your decisions about what your tariff rates will be, getting your trade deals around the world and ultimately being able to et your tax rates, because the European Court of Justice is busy now trying to make harmonized taxation around Europe through various judgements, I think all of that gets lost. So you are, in a sense, in the worst of all worlds. So my sense is it’s best to have a clean break, but get on with them and want to trade with them and have a proper free trade arrangement with the European Union, which I think is the best deal as possible.

Andrew: But why do Brexiteers like you keep voting against Brexit? I mean, you risk that it might never happen at all.

Ian: Well, we were always very clear and I’m certainly very clear that the Article 50 letter, which by the way was voted for by a massive majority in Parliament, as was the decision to go ahead with the referendum, and once we’d answered British people and we triggered Article 50, Article 50 is pretty straightforward. It says that you have two years to reach an agreement, but at the end of that period if you don’t reach an agreement, both sides will part company and whatever they do after that is done from outside of membership. And that was very clear. It ended on the 29th. They’ve debated whether they can have an arrangement, but Parliament itself doesn’t think this arrangement works. There are lots … I’m not going to bore everybody here. There’s lots of detail as to why that’s the case. And therefore, if we don’t get this, then Prime Minister always said … I think I counted it 108 times, she said that we’re leaving on the 29th with or without a deal. And my sense is that when you give a pledge to the voting public that you’re going to do something, I think the first thing you have to remember is you should actually do it. And that’s my sense about what we have to do now, is-

Andrew: But she also swore blind in the beginning of 2017 that she wasn’t going to call a general election. I seem to remember we had one in June of 2017. You say that you’re voting against it because we’d still be in the customs union, we’d still be aligned with the single market. What is the … All that surely still up for debate. The future partnership allows you to negotiate all that. It doesn’t determine that we stick in the customs union or in the single market.

Ian: Well, okay, so here’s the problem. That if we sign and agree to this agreement, then what actually happens is we have a withdrawal agreement. That withdrawal agreement sets a particular issue, which is a big problem amongst two or three, it has a backstop. Now I know it’s bandied around, people don’t quite understand it. The backstop is if we don’t, in the space of time that we’ve allowed, say to the beginning of 2021/end of 2020, if we haven’t reached an alternative trading arrangement, then what happens is either Northern Ireland stays locked into the customs union and the line, therefore, in the single market, or the whole of the United Kingdom will do that. So the UK will have to act as one. There’s no way on earth we’re going to allow part of the United Kingdom to be treated separately, so you’ll have a border as you cross the Irish Sea. That would be constitutional madness.

So that means essentially that in a period undefined in that period, if we still don’t reach an agreement, here’s the almost completely unique thing about this, which is the first time in any international treaty we have allowed the other side to have a veto as to whether we can ever leave that arrangement. So if they don’t like that and they don’t like what we come up with or what we’re going to do, they simply veto our departure. So we could on this be locked into the customs union and alignment with a single market having left, therefore having no votes at all any longer in the council, but having to accept all of the laws and regulations. And that, I think, is frankly unacceptable because as a sovereign nation, the whole point of leaving was that you take your own decisions. Now whether people like it or not, that ultimately was what I think the vote was for. It was to become sovereign in these matters and thus if the UK wants to do something and that’s what the people want, then we do it. But if we do this and the EU says “No,” then we can’t leave.

Andrew: If the DUP changes its mind by next week, do you change your mind too?

Ian: Not necessarily because the DUP has a set of particular requirements. Their main requirement is that whatever happens in this backstop if we were to agree to this agreement, they would not be left alone. In other words, they’re asking that if the backstop comes into play at the end of that period, which is as I say is indefinite at that point, the rest of the United Kingdom won’t decide just to leave them parked in the customs union single market, basically still in the EU, whilst the rest of us are slightly outside. And so the answer to that, the government will give them and I’m also certain of that, is that we would not leave them, which is, in a way, worse for the rest of the UK because it then locks the whole UK into full alignment with the single market for goods and agricultural products and it means basically that we are in the customs union, so we can’t set our own tariff rates, we won’t be able to negotiate any trade arrangements at all, because as you’ve seen with America, one of the things they want to negotiate is on the agricultural goods and on machine tools and all the rest of it. We won’t be able to do that because all those tariffs are set in Brussels.

Andrew: Sarah, has this whole protracted Brexit process had an effect on the property market?

Sarah: Yes, definitely. I think that we’ve seen particularly from the beginning of this year a marked slowdown in the number of transactions. Rick’s latest research showed a real drop in the number or properties on estate agent books. I think the fact that we don’t know what’s going to happen is causing this kind of paralysis. People are just waiting. It’s creating a false sense of security for buyers who are asking sellers to drop their prices, so sellers are just saying “Look, I don’t need to do this now. I’ll wait until the summer, try again there.”

Andrew: Because they think that prices are going in their direction?

Sarah: Yeah, absolutely. They’re trying to … I think buyers are trying to take advantage of the uncertainty to bring prices down. Sellers are saying “Well, no, because in six months time, hopefully, we’ll have a bit more certainty and there’s nothing really fundamentally wrong with the market, the economy.” So it’s really just a reflection of confidence at the moment. But that will take time to start back up again. The property transaction process takes between three and four months. So there’s a lag.

Andrew: Even if the uncertainty was resolved quite quickly.

Sarah: Yep, then we won’t see a pick up until the end of the summer, really.

Andrew: I’m happy to take some Brexit questions, Brexit-related. You seem to put your hand up. I can’t believe we’ve got a whole audience that doesn’t want to ask a single question. Get a microphone up there and then we’ll come back down here. Yes, sir?

Speaker 6: Can you explain the difference between … For the border thing between Northern Ireland and Southern Ireland and say Sweden and Norway, why would you have to have a hard border anyway? And what are the differences between these two arrangements? They’re both the same kind of thing. They’re both a non-EU entity and an EU entity.

Andrew: Norway not being in the EU, but Sweden being in the EU.

Speaker 6: Precisely. Can I also ask one more thing?

Andrew: Well, briefly because two for the price of one is not on the menu.

Speaker 6: Why on earth would a whole lot of sensible people vote down a no deal Brexit? If you were doing a business for somebody, you wouldn’t say “I’ll sit here in perpetuity until we drop dead,” because that’s what it seems-

Andrew: Who are this whole lot of sensible people are you talking about? Have you ever been to the House of Commons? Ian, the border issue?

Ian: Right, okay, so there is a difference and it’s a difference of historical issues rather than of practicality. So what’s happened is the Irish government started from day one to say that there’s only one solution they would accept is a border, which is a completely open border, as it exists at the moment, no checks, no hard border-

Andrew: Not even cameras we agreed.

Ian: Not even cameras. And then they went further because they interpreted that agreement as being no checks anywhere at any time. Now that difference, slight nuance of interpretation is the issue because the Norway/Sweden border is pretty damn quick. You cross it very quickly. Why? Because these days, there’s no longer any paper checks. This is all done by electronics. So in other words, if I’m selling goods from Southern Ireland to Northern Ireland or vice versa, I become what’s an organized economic operator. That means you pre-declare everything. So you sit on a computer, you’ve got your normal customs procedures, you send them through, they’re done. Your goods then travel. If you take Rotterdam for example, in Rotterdam there are no checks that take place now at the border. So goods are loaded onto their trucks and then the go. If they want to check something by intelligence, they send it 40 kilometers back from the border just to check if there’s anything wrong. But other than that, everybody else gets through on the electronic declaration and it’s done in a matter of literally, not minutes, but in almost a matter of seconds.

The problem arises here on the border of Northern Ireland is that we, a number of us, have proposed alternative arrangements, which is you have no checks at the border. By the way, borders now are frankly gone. There’s no reason for hard borders. We are both by the way in Schengen, not in Schengen rather. Southern Ireland and the UK. So that means passport checks take place at Ireland and at the UK so we can get through. Yeah?

Speaker 6: [inaudible 00:12:50].

Ian: Yeah, but the point is that we’re not in Schengen and nor is Southern Ireland. That means that we can rely on the fact they already do passport checks at their borders and they rely on the fact that we do passport checks on ours and we always had free movement for Irish people in and out of the UK. So it’s wholly feasible to come up with an arrangement, which we have already proposed which so far the EU has simply point blank refused to accept, which would allow that border to exist on the basis I’ve just described as the alternative arrangements. That would settle this issue and it would actually mean there would be a very fair chance that the deal that she struck would get through because we wouldn’t be trapped in a backstop stuck in the customs union. That’s sensible, but you try talking to the EU about what’s sensible because it isn’t getting anywhere.

Andrew: The gentleman who had his hand up there, let’s get … Put it back up sir and we’ll get a microphone. Let’s get a mic to him. While we’re doing that, Tony, what impact have you seen the Brexit process have on the property market?

Tony: Well, on the buy to let business sector, actually very little. The nature of bores vacuum. There is demand exceeds supply in the rental sector and those running high quality housing and the ability to recycle capital are continuing to do so.

Andrew: Why?

Tony: Yep. It’s working really well.

Andrew: Well, you’re nodding. You haven’t seen much of an impact?

Paul: Well, fundamentally there’s no difference at all. I think the only impact, I’d agree with Sarah, is people are sort of waiting due to the uncertainty. But you know, if you look at it logistically, property moves so slowly, if you’re buying the right properties in the right areas, nothing is going to happen on the 29th of March. Nothing is going to happen in the next few months. And so long as you’ve got properties where they’re desirable-

Andrew: Nothing might happen in the next few years.

Paul: Exactly right. But my point is the property market, I think there’s been some statements from people with political agendas talking about 30 percent drops in property prices and all this sort of thing. I just can’t see how that can happen based upon the fundamentals in the marketplace.

Andrew: You’ve not seen that?

Paul: Not at all.

Sarah: I think-

Andrew: Yes, sorry. Yeah?

Sarah: I’d just say that that was a bit of a misnomer. That was Mark Carney, the Governor of the Bank of England telling banks that they needed to insulate their capital bases to be able to cope with a 30 percent fall in property prices in the highly unlikely event that that ever happened.

Andrew: Yeah, he didn’t predict property prices.

Sarah: So that was a very, very worst case scenario.

Andrew: He didn’t predict property prices would fall. What he said was that we’ve stress tested the banks for a 30 percent drop-

Paul: I think it was the way it was portrayed in the media after that [inaudible 00:15:17][crosstalk 00:15:17]-

Andrew: It was, but I’ll let into a secret. He knew precisely how it would be portrayed in the media. That’s why he said it. Gentleman up there.

Speaker 7: Thank you. The EU and the UK are both prepared to countenance and no deal Brexit.

Andrew: Sorry, could you just say that again?

Speaker 7: I’m saying at the moment both the EU and the UK are prepared to countenance and no deal Brexit. Why can’t we sign this agreement and then have a finite period after which if a trade agreement was not reached, we would leave under WTO rules? So it wouldn’t effectively be a backstop. And by the way, if we didn’t reach an agreement in the finite period, whatever it was, two, three years, we wouldn’t pay the 39 billion pounds.

Andrew: The answer to that is the EU won’t agree to that.

Ian: Sorry [inaudible 00:16:08] could you stick your hand because I can’t see where you are. Oh thank, sorry. I was stretching it.

Andrew: He was saying why can’t we leave and then try to negotiate a trade deal and if we don’t we leave on WTO rules after that period? But the EU won’t agree to that. The EU … Because that wouldn’t account for the backstop and the EU will not agree to any deal that doesn’t include the backstop.

Ian: The simple answer to that is exactly that. The point is that the EU right from the outset decided to separate the two elements of the negotiation. They wanted to have what’s called the withdrawal agreement, which is how much should we pay, what are the ongoing responsibilities, and into that they logged the backstop. And then they said once we’ve agreed that, we will then discuss what the future trade arrangement is. Well, the problem is they’re completely locked together. And by separating them, they’ve created this complete nightmare, which is they get everything they want in this and then we’re left with a very poor negotiating position.

This is the point about the backstop. It’s not just that we might go into it. It’s that as we get close to the point that say we’d signed this agreement, negotiating hard with them and they’re saying “No, no, we’re not going to do a trade deal like that. Not going to do that.” Finally we get close to it, Monsieur Macron gave the game away about three months ago. He said “We’ll just wait till the British get close to the backstop and then they’ll give us everything we want. Fishing back, we’ll end up with a freedom of movement process.” He went through the whole list. He said “This is set for us to get what we want and the British will become basically supplicants.” And that is absolutely true. That’s the problem. We have no negotiating position. You’re quite right. It would have been far better if we’d said “Look, let’s go straight now to an agreement on zero tariffs under GATT 24 because we’re going to negotiate a free trade deal and then let’s spend the rest of the time discussing how much we pay and what our trade arrangement would be.”

Andrew: Alright, Sarah, let’s comment on some property matters. As I understand, the landlords have just filed tax returns including the loss of the first tier tax relief for the first time on most of the interest. What effect is that having on the market?

Sarah: I think that … I mean, it will have been a bit of a shock for people in terms of the money in their pocket for the first time. But the reality is that most landlords have been preparing for this for a number of years now. So actually, the effect on the market, more broadly, is minimal I would say in terms of that hard deadline in January. Actually, what we’ve seen over the past 18 months is landlords who have skinnier margins make a decision either to change their business model or to sell up and leave the market.

Andrew: And leave the market altogether.

Sarah: Yeah.

Andrew: You’re nodding there, Paul.

Paul: Yeah, you know, I think that the point there about the skinnier margins is a really good point in that obviously to apply that to actual properties and locations, it’s the high value-low yield properties with debt that get hurt the most, or the landlords that own them that get hurt the most. And certainly what I’ve seen is a shift in the trend in the market toward buying properties where there’s a lot more of a buffer on the yield. Geographically that’s moving to places like Midlands and the Northwest in the UK where yields are double that of London. Of course if there’s much more of a buffer, then that little bit of extra tax doesn’t hurt anywhere near as much.

Andrew: Tony, tax relief cuts, higher stamp duty, pressure on margins. Is it serious?

Tony: It’s only serious if you don’t do anything about it. We’ve seen over the last three years a lot of head in the sand attitude, people jumping to incorporate, which is a huge mistake. Companies get taxes every conceivable way. Stamp duty, it’s transactional. What comes around goes around. It’s window tax, clock tax, shop front acts. It’s nothing new. The Section 24, the capping of mortgage interest relief act basic rate, is however starting to have a significant impact. We’re seeing highly geared, less profitable landlords. In fact, a lot of landlords who work defacto as social landlords and where they’re paying taxes in advance being forced out of the market unless they act. Will it have an impact if people do nothing? Absolutely. But it will have a negative impact not only on the people in this room, but on the tenants of the people in this room. Where is the money going to come from as a result?

Andrew: So what should they do? You said it’s bad if they don’t do anything. What should they do?

Tony: Well, I think what they should do is look at what their options are. Are they truly an accidental landlord? One, two, three properties, no intention of growing. Maybe in those circumstances, pay down the mortgages, go for longer term, better quality tenants, maximize the rental yields, maintain the properties. That way Section 24 won’t affect because it only affects mortgage payments, and look at other ways you’re dealing with inheritance tax. Don’t sell if you can help it. Why on earth would you want to sell an income producing asset?

If you’re beyond that point and you’re looking to run this as a proper business, which is exactly what George Osborne’s reforms were allegedly about, professionalizing the sector, then they really need to start taking specialist advice and make sure the people that they’re talking to [inaudible 00:21:59] that which the advisor knows and they don’t.

Andrew: That’s what you do, specialist [inaudible 00:22:04]. So you’re talking about yourself here.

Tony: Oh, absolutely. Why else am I on the panel today?

Andrew: What about non-specialist advice? Wouldn’t that be cheaper?

Tony: You get what you pay for.

Andrew: Well, actually in my experience, you don’t quite often, but never mind.

Tony: Every bore needs a hole.

Andrew: Paul, should … If someone was thinking of becoming a buy to let investor today, should they do it?

Paul: Absolutely. You know, when you compare the returns from especially leveraged buy to let to other investment assets, it’s incomparable. The returns that you can generate on the cash you invest, that on a risk-return basis there’s not even a comparison to make. For the past 20 odd years, the average returns on capital has been over 15 percent per annum-

Andrew: So you can afford that extra tax then?

Paul: Exactly right. The tax is something that you need to account for. We spoke about this before the panel about it. This is not the death of landlords. This is the death of DIY landlords that don’t have a strategy. And Tony will agree with me here, this is all about looking at it the same way as you look at any other business. You need to plan for it, you need to have a strategy, you need to do things in the most tax efficient way and therefore get the best possible outcomes.

Andrew: But why would you want to kill off the DIY landlords? What harm are they doing?

Paul: Not necessarily doing any harm, but they’re an easy target.

Andrew: Well, for government.

Paul: For the government. You know, there’s lots of debate around why Section 24 was brought in. Is it to fund first time buyers? I suppose that’s probably the explanation. But actually, landlords in general are viewed as fat cats that don’t look after their tenants, and that’s not true. But they are an easy target for extra tax.

Andrew: Why, Ian, has your government been seen being so hostile to buy to let investors?

Ian: Yeah, this goes back, I think, to the run to 2015 and the then chancellor became I think quite fixated on the idea that too much property, particularly in central London, he felt was being bought up by people who had no intention of occupying it, either to let it out, but to do so rather badly, or just simply not even to occupy it. And this was aimed, I think quite heavily … It was influenced by the idea of foreign investors coming in, just buying up flats and everything else and pushing the price up. I think there were some … I personally think there have been some mistakes made. I think coming from previous Secretary of State, working pensions, I think we really do need to ensure that we keep the social rented sector functioning and with reasonable margins so that they stay in it, otherwise we’re going to be pushed to find rental properties for people and some of that pressure is already existing.

And I think the other bit which just on the taxation changes I think which I would like to revisit is some of the regulatory changes. Now you want a proper regulated market, but I think … For example, if I isolate one area on the mortgages, it’s more difficult for people to get mortgages because of all the stress testing that our mortgage companies have to do looking at the entire portfolio, checking where the location is, what kind of prices they are and I think some of that I think has put off lots of people because they sit hanging around, waiting to know if they can invest. So I think it might be worth the government revisiting, particularly in the area of the social landlords, I would think.

Andrew: But I don’t understand the strategy. You’ve not … And by you, I just mean the government. I know you’re not in it, but you are a member of Parliament or the government. You’ve not built the number of new homes to buy that are needed. You’ve barely expanded the social rent sector at all. And then you beat up on buy to let. I mean, what sector in housing have you left that you haven’t managed to mess up?

Ian: Okay, let me just take that one straight on. Look, success in governments, it doesn’t really matter what you have simply not managed to get the market right so enough houses are being built accepted. Ironically this year is probably the best year in, I don’t know, 20 years or something for house building. I think 250,000 houses or something have actually been built and the program is to get 1,000,000 houses built over the next few years. So at last with this government is now taking the decisions it should have been taking 15, 20 years ago to build more houses. They sat back and said “Well, we don’t want to do it,” and everything else. And that means planning permissions have got to change and that process is very slow in the UK compared to lots of other countries. Accept that.

I think one of the reasons why Osborne did it as well, which I didn’t and the government did at the time, mention was that the desire to get more first time buyers into the market. And there is some fact of life that the changes have delivered more houses that would have otherwise gone into buy to let have actually into sales for first time buyers. I think there’s some evidence of that. But I come back to the point that to be fair, I think now we need to take stock of the balance because we aren’t just a bought market. We do now have an absolute reliance on the bottom end for social tenants to have flats and houses to rent and so I have asked the government to look again at how we encourage that sector, particularly, because it’s vital. The other sector in a sense, and these guys just saying much the same, can in a sense look after who does it properly. But I think the social sector is the more difficult one and I think we have to look again at that.

Andrew: Let me take some questions. Yes, there’s a hand up there. We can get the microphone. Anyone on this side? There’s a gentleman up there. Keep your hand up and we’ll get the mic to you there. We just pass it along. Here we go. Collective action. Yes?

Speaker 7: Just going …

Andrew: It should come on. Don’t you worry about the technology.

Speaker 7: Just going back a step-

Andrew: But you do need to speak up.

Speaker 7: Just going back a step, on these people who are buying homes to leave them empty, foreign investors, other countries like Grenada in the West Indies, they catch these non-nationals fairly and squarely by imposing a 25 percent stamp duty effectively, 15 percent on purchase and 10 percent on sale. Why doesn’t Britain do that? Just think of the revenue that that would have made in one High Street, Kensington, or whatever the address was where they’re all over a million each. I mean, these places are empty. Why hit the small landlord is what my question is? And we’re providing a service and we’re getting out.

Andrew: You’re getting out?

Speaker 7: Yes. I provide a service for the last 12 years to foreign nationals, directors who don’t want to live in a hotel, they want to live in an apart in Greenwich, opposite Canary Wharf or a high speed ferry ride up to the center of London. They don’t want to … They still want that service.

Andrew: And why are you getting out?

Speaker 7: Because I’ve had enough.

Andrew: Had enough of what?

Speaker 7: I’ve had enough of all the legislation, all the unfair legislation. If it was a level playing field between landlords who incorporate and landlords who are small landlords, that would be fair. But this is not a level playing field.

Andrew: Sarah, what do you say to that?

Sarah: I think it’s true. It comes back to your question about strategy, what the strategy of the government was. I think there were two … There was a bit of miscommunication. The Bank of England had a strategy and that’s to do with the availability of mortgage finance, stress testing, creating stricter rules for the landlords with four or more mortgaged buy to lets. And then the government also had a strategy, which was to try and professionalize the buy to let sector, or the rental sector rather, to bring in much more institutional money, have a basically because that would allow the authorities to police and monitor that sector more effectively to bring up standards. That was the thinking behind all of these changes.

Unfortunately, in practice, they all came in within 18 months of one another and no time … We already mentioned how long the property transaction process takes. No time was given to see how each of those changes bedded in and what effect that had on the market. So we’ve had this four or five taken together, four or five changes all happening at once. And on top of that, the legislation. So you’ve got immigration checks, you’ve got HMO licensing, you’ve got fire safety checks. It has just put a real crunch on small landlords who previous to 2015 didn’t have any of this to deal with. So I think it’s a cumulative effect of all of those things without time to see what the effect on the market has been.

Andrew: Let’s go to the gentleman up there. You should have the microphone. Where is the second microphone? Oh, I don’t know how it managed to get up there. It was meant to go there. It’s got a life of its own. Anyway, carry on.

Speaker 8: Thank you. Can we talk for a moment about our old friend the law of unintended consequences? Because the government has introduced so much legislation and a lot of it seemingly on a random basis, these things collide in the marketplace and either make some landlords want to give up as the last questioner to the floor indicated, or in my case, you find that if you’re a professional landlord and you’re a survivor, because landlords are leaving the market, the demand for property at a good quality is still there. Therefore, those that are supplying that getting very nice, thank you very much, increases in our monthly rents. And there are two reasons. Landlords are leaving because of the income tax relief, which has been altered as you mentioned earlier. The second reason they’re leaving is that in many parts of the country now, we are getting landlord licensing fees introduced by the local authority. I’ve just gone through this process in the East Midlands where I have some properties. It’s a 20 page form full of data you have to provide. And the license is 500 pounds for a five year license per property. That’s pushed a whole number of amateur landlords with one property out of that market. The result is-

Andrew: When will we get to the question?

Speaker 8: The result is that the price I’m getting per month has now gone up by 100 pounds a month.

Andrew: So what are you complaining about?

Speaker 8: The government is actually reducing the supply of property to the rented sector. That didn’t, I think … It wasn’t it’s original objective. Because they don’t look at all the legislation they’re bringing in and see how it all interacts.

Andrew: What’s your question?

Speaker 8: They’re damaging the market.

Andrew: So there’s no question.

Speaker 8: There is a question.

Andrew: Well, let’s get to it.

Speaker 8: Right.

Andrew: Now.

Speaker 8: The damage is that the tenant is therefore having to pay more money because of the-

Andrew: I’m sorry, that’s not a question.

Speaker 8: Is to Mr. Smith.

Andrew: What is the question?

Speaker 8: The government is being incompetent about the property market.

Andrew: That’s a statement. It doesn’t end in one of these. What bit did you miss at the beginning? Let me [inaudible 00:33:31] come back. There’s too much legislation is what he’s trying to say. Why are you doing it? And I think the other thing coming out of the lady’s question down here, a lot of what Mr. Osborne reacted to was because of a particular bubble in London and not just in London, in central London. Not even central London, within the circle line. Why would you base national legislation in what is essentially a freak market?

Ian: Well, the two of these questions, your comment is correct. I’ve written about this and I said that places like New York actually do this. They say that if you don’t occupy this place, we are going to put a different tax level on you. And that rather discourages it there. And I think we could have done something like that at the time and I think that would have helped … What was happening was a lot of people, particularly from China, were buying properties in the idea their children were going to come university here at some point and then they’d occupy them 15 years later. But in the meantime, they didn’t really care because they had enough money, so it would just accrue a value and at some point they might sell it. So that could have been dealt with, I think, separately. I completely agree about that and there were arguments at the time about this. But I think some of this has been led by the media and the-

Andrew: Oh, be the media’s fault.

Ian: No, no, no. I didn’t … I’m not blaming the media. I’m saying the argument-

Andrew: You just did.

Ian: The decision always lies with the government.

Andrew: But I mean a non-occupancy tax as the lady down there mentioned would be relatively simple to administer.

Ian: Well, the reason why the didn’t do it is because they said there was already problems in local authorities trying to police that process. But I think that could have all been resolved. So first of all, I do think we should have gone certainly for the central London bit, down the road that New York has already gone.

Andrew: What about the gentleman up there that … And Sarah alluded to as well that the unintended consequence has been that there’s a decrease in the amount of privately rented property available at a time when more and more people are being forced to rent, whether they want to or not because they cannot, particularly young people in their 20s, they just can’t afford to get onto the property market. I was looking at the latest figures. There does seem to be a decrease in the private rented … The amount of private rented property coming onto the market. I was looking at you, Ian Duncan Smith.

Ian: Oh sorry. You mentioned Sarah so I thought-

Andrew: No, I mentioned that Sarah had alluded to that.

Ian: Yes.

Andrew: Is there a government policy to have more privately rented accommodation or not?

Ian: I think the government’s overriding policy right now, which rather shatters this, is I’m afraid … Not afraid actually because it’s a good policy, which is we want more houses built so more first time buyers can get on the market. That’s wholly because … The amount of owned property now has fallen, owner-occupier property has fallen in the UK and that’s not the historical position for the UK and it should be up. So number one, build more houses and we need to make more houses available.

But I do think that the thing that they … Forgotten would be the wrong word, but the other bit which hasn’t been looked at, which is how do you encourage people at the same time to have rental properties on the market? The two slightly clash. We’ve already heard this from your experts on the panel. Because in one sense by the tighter squeeze and the more professionalization of the buy to let market has delivered more properties into the sale market. So there is a case that more people are buying properties now and that, you could argue, is a good thing. But the problem we’ve got, and I’m particularly concerned, I come back to my point, and I’ve argued with the government and I’m going to go on arguing with them, we have got to look at what we’re asking people to do, particularly in the social rented market. That’s the bit that I would isolate.

Andrew: I’ll come soon. Tony, what is your take on this? Woman down here saying she’s getting out of the market. Gentleman up there saying he’s doing fine, but that’s because the supply is being squeezed, or the demand is still on the rise. Are you clear if the government has a rental strategy?

Tony: I’m not clear the government has a strategy at all.

Andrew: Well, for anything?

Tony: For anything. But that’s the same with any government. It’s a bit of a self-fulfilling prophecy. The law of unintended consequences is right. We’ve had this perfect storm of regulation, legislation, variable enforcement, outcomes-based, and nobody’s really sat down and did planning 101. Where are we now? Where do we really want to go? And which roads around do we take? How do we reverse engineer the process? Rental sector is now the second largest [inaudible 00:38:24] in the UK. It’s growing-

Andrew: It accounts for 20 percent of tenants.

Tony: Sorry?

Andrew: It accounts for 20 percent. The private sector is 20 percent.

Tony: Yeah, exactly.

Andrew: So the high is twice what it was in 1996.

Tony: Yep. And growing fast.

Andrew: Well, not anymore we here.

Tony: There are always short term up and downs, but the trend will-

Andrew: You think the long term trend is still up?

Tony: Yes, it is still up. And we’re seeing that every single day that people pick up the phone to us. The real good thing actually about some of this unintended consequence is that there are tighter mortgage lending rules for buy to let landlords. If anybody in the room had a mortgage in the late ’80s, early ’90s when we came out of the ERM, that hurt. Interest rates went through the roof. So to have stress testing and five and a half percent, looking at the business portfolio as a whole will stop people getting into trouble. So anything more than 70 percent loan to value is regardless exposes you to all sorts of risk. So yes, government does need to join up the dots more. More money needs to go into build to rent, the threshold for companies entering the build to rent market needs to come down, and local authorities absolutely have to work with private sector, and the private sector has to understand that will be a massive cultural change for them. So it’ll sort itself. But it will take time.

Andrew: I know this is a big issue for a lot of you. Let’s get some more questions please. Yes, the gentleman there.

Speaker 9: Yeah, so just mentioned build to rent, Tony. Ian, there’s a strong feeling within the landlord sector, the community, that this government has a specific agenda to clamp down on buy to let landlords to clear the decks to bring in more of the build to rent operators. What is your view on that?

Ian: Well, to be quite frank, this is a debate that’s going on right now. So I don’t think it’s an absolute position. I think there are those that think that we don’t want to have a lot of small operators in the market. We want the bigger operators. My view is that I think there’s a balance in this and I think … And I’ve already spoken to them on a couple of occasions. We have to get the balance right. The balance isn’t right at the moment. We want a healthy market that has an ability for people to buy their homes, we want ability for people who want the rental market. For example, I was very concerned the other day and I made this clear, funnily enough the chancellor was on side with me, which isn’t always the case, but I said to him “I’m very worried about getting rid of the six month [inaudible 00:41:10] position and putting an imposition on landlords for longer tenancies.”

Now that’s great in one sense, but it also takes away the flexibility of landlords to deal with people who become very problematic and difficult tenants. And so I said “The idea you just suddenly, it’s all alright because the tenants’ rights are absolute. People actually who put these properties up struggle sometimes to get tenants out and the six month tenancy, I think, is reasonable providing it’s properly operated.” So this was a row and it’s a row still going on in government. So it’s not absolutely settled. My view is the balance is everything.

Andrew: You’ve still got the microphone. What do you make of that answer?

Speaker 9: The … Clearly what has just been mentioned by Ian about the tenancies. I mean, if we go back to ’88, the housing act, which brought into buy to let and this massive growth was underpinned by the reality that lenders could, if they chose to, if the landlord was defaulting, get the property back. But now we’re obviously seeing a very strong political tide from certain sections to change the longer tenancies. But the reality is, of course, the vast majority of tenancies are ended by tenants, not by the landlords.

Andrew: Yeah, alright. Okay, Tony, you wanted to come in. As I understand it, the government’s been consulting on three year tenancies with a six month break clause in them. But that hasn’t become law yet, is that right? I was going to ask Paul, and then I’ll come to Tony.

Tony: Oh, okay.

Paul: Can I just make a point just –

Andrew: Of course.

Paul: The build to rent there, just a little bit. I read a report recently, we just made a comparison there between the UK and the US and this is quite a good comparison, that there’s millions of build to rent units in the US and still a very strong private rental market. There’s thousands of build to rent in the UK and the vast majority of the market is private. So there is a market for both. I think at the moment, for landlords, it’s more of a fear rather than a reality. And I think at the end of the day, regardless of the way the government goes, there will still be a balance.

Andrew: Tony, you wanted to get in on this build to rent?

Tony: Build to rent is a good thing. Longer term tenancies are a good thing, but with rights come responsibilities. Landlords have rights, certainly tenants have rights. I’ve been both. I’ve been a tenant in good landlords, been tenants for bad landlords. So having good quality, well-maintained, licensed premises is actually good for everybody including the market. But the ability or a longer tenancy should be simply that, an ability, not an automatic right. Having said that, if you want very short term tenancies, do Airbnb. I’ll run a hotel or service to comp. But if you also want longer term tenancies, then the ability to go beyond the six months for the right tenant to reach an agreement, but with the ability for both sides to get out of it in the right circumstances could work. Sometimes you have to let the market work itself out.

Andrew: But Sarah, wasn’t the government consulting on whether everybody should have a right to a three year tenancy?

Sarah: Yeah, I think that is what they’re consulting on. I think there’s been a lot of political pressure from the left to look after the rights of tenants more carefully. If you look at Scotland, they’ve already brought in longer term tenancies and also rent caps. Or at least they brought into the legislation the ability to put those in force if they see the need. That has had … It’s not really had an effect on the provision of mortgage finance by buy to let lenders there yet, but I think that’s because the rental caps and longer term tenancies haven’t been enforced by the government yet. I speak to mortgage lenders and mortgage brokers a lot, day to day job, and mortgage lenders have been very explicit that these types of moves to make mandatory long term tenancies where it doesn’t matter if the tenant falls behind on their rent and then the landlord can’t pay the mortgage and then the mortgage lender is exposing themselves to a huge amount of risk-

Andrew: And they can’t reacquire-

Sarah: And they can’t repossess the property, you are then in a very difficult situation where your intention as government is to protect the tenant. What you’re actually doing is going to discourage lenders from lending on that type of property in that location, landlords won’t be able to get a mortgage, tenants won’t have anywhere to live. So they’ve got to think about both sides of that equation. I’d also like, just very quickly, we talked about the kind of housing strategy and you raised the point about social tenants who rent from private landlords and that is a very big part of the private rented sector and it’s an important part. And you mentioned that you want to do … You think that it’s an area that the government needs to look at and I wondered if I could ask a question. What specifically you would put in place? For example, should tax relief be reinstated for landlords who do rent to social tenants, so that that profit pressure is taken away for that specific part of the market?

Andrew: So to give them an incentive.

Sarah: Exactly.

Andrew: Ian?

Ian: The answer is I do think that’s the area that we need to look at because what has changed over the last 15, 20 years, I suppose, has been the balance between wholly owned social housing and privately rented social housing. And we’ve come to rely more and more on the private sector to provide our housing. Now if we went on a big building spree, which we are and we’re going to add more social housing, it’s still not actually going to get rid of the requirement to have this kind of affordable rented sector, which is vital and particularly in London. It’s particularly peculiar in London that it’s required more than anything else. So I would certainly … One of the areas I’ve said is we should kind of … Wrong way to put it, separate out to a degree, not completely, but just separate out and look at this area as a social need, therefore it needs to be treated in a way that … Because the returns on it are not great. So you need to look at, therefore, what keeps people in the market.

Andrew: Alright then. Get some more questions. Yes? Hold on, we’ll get a microphone to you. I know you’ve got a loud voice, but you still need a microphone.

Speaker 10: Three and five year tenancies would not be a problem if procedures for evictions for specific derelictions were toughened up and speeded up. Why should this not happen?

Andrew: Because it’s unpopular to evict people if you’re a politician.

Ian: Well, it’s a political debate.

Andrew: What bit of that didn’t you work out?

Ian: Yeah.

Speaker 10: [inaudible 00:48:02].

Ian: Yep.

Andrew: So why are you asking the question when you know the answer? Right, let’s have more questions. Yeah, the gentle … I’m determined to get a microphone to you, but keep your hand up so that they know where it is. Have we got a microphone near anybody else at the moment? You’ve already asked a question. Don’t push your luck.

Speaker 7: [inaudible 00:48:22].

Andrew: This corner is a bit … No, you can’t shout out if you haven’t got a mic. Behave yourself. Yes, sir?

Speaker 11: Hello, this is-

Andrew: It’s alright, the mic will work. They’ll handle that. You get the question right.

Speaker 11: My question is to Ian. Ian, you were the architect of Universal Credit. Do you think it succeeded and has it been successful?

Ian: Right, okay, so universal credit, we designed it exactly as that, the [inaudible 00:48:45] benefit, which part of that was housing benefit, local housing allowance. They both came into the same benefit system. I do think it’s successful, but I think that the whole point that when I had launched it, we didn’t roll it out like tax credits. We rolled it out so it goes stage by stage. So at every stage, they’re able to reset. And one of the big problems, the reason I resigned at the time was because the then chancellor chose to take four and a half billion out of the benefit. Now my point was you can’t roll a benefit out if you take a large chunk of the money out. What has been good over the last two years, to be fair to the government, I campaigned to get the money back in. So pretty much all of the money that was taken out is now back in Universal Credit.

So that means, therefore, that we’re back to equilibrium, but yes there are some issues and these issues are being dealt with. Some of those issues were to do with the fact that as part of that savings program, they instituted another extra two weeks waiting on the back of the Universal Credit. I designed it for four weeks, not for six weeks. And my concern was that those extra two weeks would lead to issues and problems. And where it’s been rolled out like that, they have had issues and problems. So now the government’s reduced it by a week, brought forward advance payments, absolutely right. It’s allowed people on housing benefit to keep the first two weeks of their housing benefit as they go into the claim. That came out the last couple of months. That’s a good start. And the key element now, which is the next flexibility and I always intended this to be the case, is that if an individual requires that their rent is paid direct to the landlord, then that can be nominated under the alternative payment regimen and activated straightaway. What actually happened was they couldn’t do that at the time when it was launched out. They can now do that.

The idea is that if they come and say “I would prefer my payment to be paid to the landlord,” that’s great. And the whole idea of it was … And this is why we did it like this, whether it was paid direct … Remember local housing allowance, by the way, for private tenants was anyway paid direct to the tenant. It wasn’t paid to the landlord. And one of the big issues about that was landlords complained, quite rightly, that a tenant could run up up to two, two and a half months of arrears, then pay a small amount, the clock was set back to zero again and they could run up further arrears. Universal Credit brings that to a stop. In other words, if you run up those arrears and the landlord notifies, then what actually happens, you can go into direct payment to the landlord, and then also you have a very accelerated process of getting the money back, which you didn’t have before. So that’s a good facet.

But what we did when we opened the portal to landlords, that is the flexibility that allows the landlord to be able to contact the DWP. So the key area now is do we do a quick enough assessment of the individual and their debt position when it goes into Universal Credit to decide that if they are carrying debt, 60 percent of tenants are carrying debt over from tax credits when they come in, which was never anticipated at the time. Treasury was meant to deal with those. They should still deal with them and separate them from Universal Credit.

But if you are, then the answer is, I think, you probably need to go straight on to direct payment until all that debt is cleared and then you get a reassessment. And that’s one of the proposals that’s going on. So the proposed staged rollout of this, it enables them to actually rectify these things and that’s the next area, I believe, that they can rectify as they do the rollout from tax credits into Universal Credit. Overall, as rolled out and balanced as it completes its process through the country, I think it is having already and will have an enormous effect. More people are genuinely going back into work directly as a result of that. You’ve seen already the figures recently were down below four percent on unemployment for the first time in decades. This is hugely to the idea that actually through this process you’ll be better off in work and that’s the key. But it’s an engagement between landlords and I know the DWI talked to them only a week ago. They’re reacting to the comments coming from it and they’re actually trying to be as flexible as possible. And I think if you keep talking to them that’s what you’ll get.

Andrew: How many people are on Universal Credit?

Ian: It’s about 1,500,000 now on Universal Credit and the next phase of the rollout will, over the next two and a half years, take that figure up to around five. It depends how many are on benefits, but around 5,000,000.

Andrew: So you came to power in 2010 with Universal Credit, a reform, as a centerpiece of welfare reform and nine years later, it only reaches 1,500,000 people.

Ian: Well, I don’t think that’s-

Andrew: At this rate we’ll be into the 22nd century before-

Ian: No, no, no. Honestly, there is a reason why and when I introduced it we decided the best way was to do it stage by stage because all the … I mean, you take tax credits, when that was rolled out, nearly three-quarters of a million people didn’t get a damn payment at all for months. And they’ve never got that money back.

Andrew: You never thought there would be just between 1,000,000 and 1,500,000 people when you started this by 2019, 2020.

Ian: No, but I adjusted it for a very good reason, Andrew, because what we wanted was as the benefit rolled out, when you … Because the … By the way, the system is absolutely working really well. The IT system works, which is unusual for government IT, but it is working.

Andrew: It’s not unusual. It’s unique.

Ian: Yeah, yeah. But the point I’d make and this is the important point. We decided that because it is such a comprehensive benefit, far better to take time to make these changes, and these changes that are being made are being made because as you roll it out to the next group-

Andrew: You learn things.

Ian: You [inaudible 00:54:07] issues.

Andrew: There’s a woman there had her hand up on this. Where was it? Yes. Let’s get a microphone to you.

Speaker 12: Hiya. I am concerned that the sorry smaller people are being taxed heavily and in the community we say “Why aren’t big companies … Why are they allowed to pay such small amounts of tax?” Why don’t you change the rules so big companies are appropriately taxed, instead of just people? You’re talking about people going into work, more people in work, but there’s lots of people who are in poverty working really hard in poverty. So why don’t you balance things out better?

Andrew: Which big companies do you have in mind?

Speaker 12: Facebook-

Andrew: Other than Google, Facebook.

Speaker 12: Google, Facebook-

Andrew: Amazon and Apple. Other than that, who would you have in mind?

Speaker 12: General Electric. I mean, there’s lots of-

Andrew: General Electric. That doesn’t pay tax?

Speaker 12: I’m talking about massive, you know, small tax bills for huge multimillion-

Andrew: Starbucks.

Speaker 12: Profits.

Andrew: Starbucks.

Speaker 12: Yeah, I mean, I couldn’t give you a list here right now.

Andrew: I just gave you a list, so you don’t need to.

Speaker 12: Thank you.

Andrew: Alright. I mean, I’m not sure the panel … There is a general concern that people are paying a lot of tax, whereas the big companies have managed to find ways around tax. It’s not just a British problem. The Europeans have been looking at this, the Americans have been looking at this as well. Tony, you-

Tony: If you look at some of the statistics, the landlord market pays 4,000,000,000 in tax. That’s more than gambling, that’s more than banking, that’s more than food.

Andrew: More than banking?

Tony: More than banking.

Andrew: That’s only recently since the crisis, they haven’t been making profits.

Tony: By about 1.1 billion.

Andrew: Yeah. But in 2008, the British financial sector paid 82 billion pounds in tax. It’s a bit more.

Tony: Yeah. That was then, this is now. And if you look at companies like Amazon, they pay almost nothing. So there is a real point there. We should have a slightly more balanced tax system.

Andrew: Yeah, just to come full circle, Ian Duncan Smith, maybe the way that you get the big companies the lady has mentioned to pay tax and to stop them moving locations to avoid it of course is you probably need to tackle that at a European level, Ian Duncan Smith.

Ian: Well, actually, I don’t agree.

Andrew: I’m surprised.

Ian: Yeah. I agree that there is an issue about the tax, but a national government can resolve that themselves and there is every reason why they should do. Companies that make profits here should pay taxes on their activity and profits.

Andrew: But the way they set things up, they don’t make profits here because they pay massive intellectual payments to Luxembourg or to … What is it? To Dublin. The problem is the double dutch Irish sandwich, or something like that.

Ian: Yes, I know. So there’s a balance here. I think we have a particular problem which is in the last 15 years is the growth of these companies like the Googles and the Amazons, because they are global phenomena, they make their money on two counts. First of all they make their money because they own our data and we don’t transact that data. They do. That’s where most of their profits come from. And then they choose quite simply because they don’t have massive outlets other than warehouses sitting in most of these places. So all of their intellectual process-

Andrew: They move it to wherever they want.

Ian: Wherever they like. Now that is something that does need to be dealt with just in general. It’s not just about Europe. Generally about where and how do you recognize that this taxation process. But that has to be done by agreement. But the main point is if you make profits here and the government is now serious of this, if you make profits here, you have to be taxed on those profits here and you can’t just say that you’re set up somewhere else. You will still have to pay full taxes on those profits. And there are ways of doing this. I actually have a particular [inaudible 00:58:24] which is my sense is that it’s high time now that we dealt with the way in which the ownership of our data creates massive profits for these organizations. This is unique in history that massive conglomerates own so much of what we do that we are unable to transact that ourselves and that process does need to be broken down and changed as in all conglomerates and all of those processes, the free market doesn’t operate-

Andrew: Let me bring this back to property and to ask Paul this question. As the regulations get more complicated and as it becomes tougher, the tax relief is being squeezed if you’re a private investor, investing as an individual. Is the way now to proceed in buy to let is to do it through a corporate entity, to form a company?

Paul: Look, it’s one option. The corporate entities are exempt from Section 24. However, I think it’s relevant to the previous to the previous point as well and it’s relevant to your question. A common misconception with Section 24 is due to the way that it’s written, that by 2020 buy to let mortgage interest will no longer be a deductible expense. However, it is provided as a tax credit at 20 percent.

Andrew: At the basic rate.

Paul: Which just so happens to be the basic rate of tax. So that means that for anybody who’s earning as of April this year less than 50,000 pounds per annum from employment income plus property income and any other income, that person will not be affected at all.

Andrew: Because they’ll still just be deducting it at their tax position.

Paul: [inaudible 01:00:02][crosstalk 01:00:02].

Andrew: They haven’t gone into the higher tax bracket.

Paul: Will be exactly the same.

Andrew: Alright.

Paul: Now what’s more interesting about that is as a married couple, with property you’re considered almost a joint entity. So for two people that are married, you can have up to 100,000 of income spread amongst you.

Andrew: Oh, you can pool the-

Paul: Pool it. You partner. If I’m earning 150,000 a year and my wife’s earning nothing, I can allocate 50,000 of my property income to my wife.

Andrew: Should she say “Thank you very much.”

Paul: I’m sure she would. But what’s interesting about that is for a couple, in my experience, almost maybe not the majority but at least half of the people we speak with have the ability to spread that sort of income between them, especially ones that get toward later in life and if property is their pension, I wouldn’t say the majority of people are generating more than 100,000 a year from their properties. So that’s quite interesting to be aware of that. And it’s one reason why you need to seek advice. If you’re a landlord and you haven’t sought advice about Section 24, you’re mad. You need to know how it’s going to affect you. And you need to know what strategy works in the current market. If you don’t have a strategy, you’re also mad. Seek advice. It’s not a do it yourself activity anymore. It’s too complicated. So as far as what works from a tax perspective, as far as property selection, finance has been a number of changes with finance lately, how that affects certain situations, you really need to seek professional advice and determine what the best way forward is for you because there’s a massive difference between the right strategy or the right decision and the wrong strategy and the wrong decision.

Andrew: Tony, I think you said earlier on that you didn’t think going the coproate route was right for a lot of buy to let landlords.

Tony: For the majority of people, yeah, it’s going to be a really expensive decision. Limited companies are taxed in seven different ways. Corporation tax, income tax, dividend tax, the [inaudible 01:01:55] loan account, capital gains tax, inheritance tax, national insurance and property all to enrollment. So that’s eight. Having said that, if all you’re thinking about is tax, then you’re looking at this through the wrong end of the telescope. It’s a business. And a business is only exist to make a profit. A business is legitimately allowed to reduce its tax insofar as the law allows. But if you’re coming at this purely as a way of saving tax, well then, actually become an Amazon and be done with it and have the intellectual property in some sort of tax haven. But if you run it as a proper business, a combination of different legal personalities, you, limited liability partnerships, limited companies, mixed partnerships and separating ownership from enjoyment from control, avatars of the same people, legitimately allows you to run proper businesses and gain a lot of benefit.

Andrew: Sarah.

Sarah: I think I agree with what both Paul and Tony have said. I would add one point to the getting professional advice. You’ll find that some mortgage lenders and typically the ones that will take account of the fact that you’re a basic rate taxpayer and therefore give you a better deal, are only accessible if you use a broker. So that’s something to bear in mind. But I also think it’s worth putting this … Like taking a step back from thinking just about buy to let. Ultimately if you’re looking at investing in property because it’s part of your personal plan for affording your retirement, then you need to make sure that you’re thinking about your whole portfolio. Over-investing in property probably isn’t the right thing to do. Ensuring that you have a balanced portfolio is the right thing to do. Financial advisors can help you with that, though often they’re very siloed and focused either on investments and within that, I only like open-ended funds rather than investment trusts or whatever it might be. But I think it’s important to take a holistic view and think about where your income is coming from, whether you’re insulated against falls in the stock market, property could be a good hedge against that. But it’s all about balance and diversification from my point of view. I think it’s important-

Andrew: Some more questions from the audience here. Let me see your hand. Yeah, there’s a woman down here and a man in a white shirt up there. So let’s get a microphone to the man in the white shirt. Keep your hand up and if the lady here can keep her hand up, we’ll pass the microphone along to you and we’ll go to the woman there first. Here’s the microphone coming there.

Speaker 13: Hi. I just wondered, Ian, do you think things might get worse for us landlords?

Andrew: Ian? It was Ian you wanted to-

Speaker 13: Yeah, or in general actually.

Andrew: Yeah, I think it’s a good questions for them all and then I’ll come to the gentleman there. I mean, just looking at some … We’ve had the changes on tax for buy to let. There’s a ban on letting fees, I think that’s come in already.

Sarah: They’re coming in June.

Andrew: Coming in in June. There’s a deposit cap of six weeks. Now the government is looking for three year tenancies. The talk of a specialist housing court to resolve these things. The government has been pretty active in this area. Will it remain so? I guess that’s what governments do.

Ian: Yeah, I can’t … Obviously I can’t give any guarantee-

Speaker 13: I know you haven’t got a crystal ball, but-

Ian: Because I’m not in government, but also because I think governments are always being attracted back into various areas if they think there’s an issue or they’re under pressure. I think there’s been a lot of change already and we have already the tenancy stuff, which is being consulted on. But at the moment, I can’t see anything beyond that. But that’s the nature of Parliament. It depends who’s in power, of course. If the other side were in power, the answer is yes.

Speaker 13: Yeah.

Andrew: What’s the other side these days, Ian? Is that your own party or another party? Tony?

Ian: I’m going to take the fifth.

Andrew: What other things could government do, either good things or bad things?

Tony: Okay, let me answer the lady’s question.

Andrew: That was the lady’s question.

Tony: Will things get better, will things get worse? Probably things will get better. Demand exceeds supply. You get ups and downs in any market, ups and downs in any kind of regulation. Government can screw things up 40 ways from Sunday. It’s just the nature of the beast. They’re in the Westminster bubble, it’s completely isolated from the real world. Now okay, if suddenly we said that before you become an MP you have to have a life, be at least 50, have some real world experience, things might change.

Andrew: Ian’s had a life.

Ian: I’m qualified.

Tony: You’re qualified, absolutely. Present company excepted.

Andrew: What is Mr. [inaudible 01:07:06] became Prime Minister? What would that do?

Tony: Well, would the last person who leaves turn out the lights behind them. Seriously. The man is a devout Marxist [inaudible 01:07:18] in his smart suit.

Andrew: That’s the shadow chancellor.

Tony: Yeah, it is even worse. So are there any champagne Marxists in the room? Good. Fine. You know, sorry.

Andrew: There might be. They just don’t want to talk.

Tony: You know-

Andrew: Champagne [inaudible 01:07:37].

Tony: Divided we stand, united fall. [inaudible 01:07:40] discuss these things.

Paul: Can I comment on that as well.

Andrew: Yes.

Paul: I think things will get better because all of these changes have caused uncertainty and obviously uncertainty, no one really knows how they’re going to affect the market. But Tony is exactly right. Any market is all about supply and demand. The supply is substantially outweighing … Sorry, the demand is substantially outweighing supply. Ian’s right, the supply is increasing, but the average for the past 10 years has been about 150,000 and the average each year over those 10 years that are required has been 300,000. So we’re only supplying to half of what’s needed. And whilst ever you’ve got those dynamics in a market, things are going to work in the favor of landlords.

Andrew: Even though changes to landlord taxation are now calculated to add 2,000,000,000 to the tax they will have to pay within five years?

Paul: As I say, it’s all about how you deal with that. If you’re just going to-

Andrew: But you have to pay it.

Paul: Are a higher rate … Well, you don’t. If you’re a higher rate taxpayer and you’re just going to sit there and cop it, then fine. But there are strategies for better dealing with it.

Andrew: There are?

Paul: There are a number of ways of dealing with it-

Andrew: To mitigate it?

Paul: To mitigate the tax.

Andrew: Alright. Let me mitigate by going to the gentleman there.

Speaker 14: I read an article recently in the papers that local authorities because of budget cuts had sold off thousands of acres of lands and buildings and these were traced back to offshore trusts and companies and weren’t being built on. At the same time you hear about developers land banking and not building on planning permissions granted. At the same time you’ve got developers building properties which are shoddy and affecting first time buyers who have used help to buy scheme. What does the government need to do to deal with these issues?

Andrew: Wow, these are a lot of issues. What newspaper are you reading? I don’t think all of that was in the Daily Star, you know. Sarah?

Sarah: What does the government need to do?

Andrew: Well, let’s take the first one. The public sector is always under pressure to sell off assets that it doesn’t need, particularly land for development or buildings which can be redeveloped. Has it been selling to offshore entities?

Sarah: I don’t know the answer to that question. I wouldn’t be comfortable saying yes or no, either way. But it is true that a lot of brown field sites have been sold off. The government has committed to making public land available for development. There’s a bit of a standoff as I understand is between developers and various local authorities. It depends where you are in the country, what form that standoff is taking. A lot of local authorities are asking developers to commit to supporting infrastructure. So roads and building private schools and utilities and all that kind of thing and they’re withholding planning permission until the developer will agree to take that on. That can sometimes wipe out a developer’s profit, which is contributing to the lack of movement and the slowing down of approvals in some areas. The government, to address that, cut red tape. I don’t know what the means in practice. I think Ian is probably better placed to answer specifically what they can do, but I’m not-

Andrew: He’s tried to cut red tape. That’s why he’s not in the government anymore. You are one of the two … Both Tony and yourself, your companies are sponsoring today’s event. We’re coming to our final few minutes. There’s a form on people’s seats to tell us a little bit about-

Paul: Yeah, so each of you should have a form. The top of that form is quite literally feedback. How did you find the panel? Did you enjoy it? Is there ways that it could be improved?

Andrew: The answer to that is of course yes.

Paul: Of course. The bottom of that form is to have us get in touch with you. So if there’s any areas with regards to strategy, property selection, finance, wealth creation, retirement planning through property … So as landlords, if there’s any questions in your mind, that’s what we can help with. So if you fill in that form and return it to either my colleagues in the room or to our stand, which is right at the door, we’re drawing three bottles of Veuve champagne at-

Andrew: What kind of champagne?

Paul: Veuve.

Andrew: Veuve Clicquot.

Paul: Veuve Clicquot.

Andrew: Oh, that’s alright. Not Prosecco.

Paul: So in return you go into the raffle-

Andrew: Things are really quite good after all.

Paul: So if everyone could get that in.

Andrew: Next year it will be Dom Pérignon. Alright, so you’ve got to do that and you might get three bottles of champagne. Gentleman there. And then we’ll go up to the gentleman there. We’ll try and get one more in then we’re done. Yes, sir.

Speaker 15: Going back to a point earlier on, which is the government’s policy of encouraging home ownership, encouraging first time buyers, encouraging portability in the property market for homeowners, why is it legislated that there are such huge barriers to entry for first time buyers in the form of difficulty getting mortgages and high deposit required, high transactional costs? And why are there such huge obstacles in the way of homeowners wanting, for example, to scale up or scale down because their circumstances have changed?

Andrew: Alright. Sarah, are there huge obstacles? I mean, I think, wasn’t one of the problems in the lead up to the crash in 2008 was that there weren’t enough obstacles? Canada has always had a 70 percent loan to value maximum. They’ve never had a banking crash. In American where you could self-certify and say “I’m earning $110,000 a year,” even though you were only earning $15,000, nobody ever checked, wasn’t that the problem?

Sarah: It was contributing the the problem, yes. I would say actually a lot of the barriers to entry for first time buyers have been removed. The government scrapped stamp duty up to a certain threshold, I think is 600,000 pounds.

Andrew: Which covered a lot of the entry market.

Sarah: Yeah, so in terms of barriers to entry, transactional costs of first time buyers have been removed. Actually in 2018, more first time buyers got mortgages than for the past 12 years. So access has improved dramatically. I think a lot of the fact … The exit of many smaller scale landlords has put the type of properties back on the market that first time buyers want to buy as well. That’s helped support that bit of market. The issue is that there are massive barriers to moving for homeowners. So people who want to move up the property ladder and people who want to downsize. And also I think downsizing is a slightly misleading term, because often they’ve got a big family house in an area outside of town and it’s far too big for a retired couple who can’t do the stairs anymore, for example. They want to be nearer their children. That means moving to a smaller place, they’re competing with first time buyers for the two bed flat, in areas where the school catchment areas are good. So house prices can often be a lot higher on that two bed flat in the right area to be near their grandchildren and their children than the three bed house they’re selling.

Andrew: But hasn’t the scaling of stamp duty, turning stamp duty from being a transaction tax into a major revenue for government, hasn’t that also frozen the market? People just don’t move.

Sarah: Absolutely.

Andrew: They’ve rather build a conservatory extension than pay the stamp duty for having to buy a new house.

Sarah: That’s what you’re seeing in the middle market, people who, with growing families, are choosing to extend because why would you pay 70,000 pounds in stamp duty to the government and have the house you’re moving when you could pay 70,000 pounds to a developer and have a bigger house and it’s exactly the way that you want and then your kids don’t have to move school.

Andrew: Right. Let me interrupt you because we’re in our final minute. I just want to go around the three … Of course, I’ll let Ian out of this. In five years’ time, will the private rental market be in better or worse condition than it is now?

Paul: Better.

Tony: Better.

Sarah: Better.

Andrew: Three betters. We end on an optimistic note. Big round of applause for our excellent panel. Thank you.


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