Over the past few weeks we’ve discussed in numerous articles the fact that the UK economy is finally on its way to recovery and has already had a knock-on effect on the property and private rental markets. However, in his recent speech Councillor of the Exchequer George Osborne claimed that the UK is not out of the woods yet, and that further austerity cuts would be needed to help the economy fully recover.
At Just Landlords we often argue that in order for landlords to succeed it’s essential for them to keep up to date with what is happening with the UK economy, and so in this article we look at some of the most important points from George Osborne’s plans for 2014 onwards:
The Welfare Reforms will Continue
Since their inception the welfare reforms have come under much scrutiny, as many of those that have been affected have found themselves struggling since. The idea behind the welfare reforms is that they will make the benefit system fairer, meaning that those that receive benefits will no longer be given more than the average person in full time work. Some of biggest changes to the benefit system under the welfare reforms were the introduction of Universal Credit, the spare room subsidy and an overall cap on the amount each person can receive in benefits.
Now, George Osborne has stated that the reforms should go further, and that those under the age of twenty five or earning more than sixty five thousand pounds a year should no longer be eligible to receive housing benefits or council housing respectively. He believes that by implementing these schemes the government would be able to save around twelve billion pounds per year which could be used to reduce the deficit and improve the UK economy.
We may see Tax Cuts in the Future
Even though much of George Osborne’s speech focussed on austerity he also mentioned the possibility of introducing tax cuts in the future. He claimed that these cuts would benefit “the lowest paid” members of the UK and not those on high salaries, however he failed to go into further detail as he claims the cuts would only be plausible if the government reduced spending.
Mr Osborne claimed that the UK currently borrows around one hundred billion pounds per year and spends around half this amount paying interest towards debts. He claims that the only way to fix this issue is to cut back on public spending and stick with current austerity measures, and added: “Do we say, ‘the worst is over; back we go to our bad habits of borrowing and spending and living beyond our means – and let the next generation pay the bill’?
“Or do we say to ourselves, ‘yes, because of our plan, things are getting better. But there is still a long way to go – and there are big, underlying problems we have to fix in our economy’.”
What does this mean for Landlords?
One of the biggest concerns for landlords over the past few weeks was that the improving property market would soon cause another housing bubble, however with further austerity measures being put into place it is likely property prices will start stabilising as households will have less money to spend. This is a double-edged sword for landlords, as with the property market stagnating their property portfolios will lower in value, however at the same time it means that the demand for private rental property will likely increase.
The decision to further reduce housing benefits has already concerned a number of landlords, to the point where many have officially stated that they are no longer planning to let their properties to those receiving housing benefits. Naturally, this stance has proven controversial among the British public, with some claiming it will lead to many people becoming homeless and cause suffering to some of the most vulnerable families.
However, landlords have claimed that it is difficult for them to let to housing benefit recipients under the government’s new plans as they are at high risk of falling into rent arrears. Even with rent guarantee insurance, the amount of money each landlord could potentially lose by letting to DSS tenants means it is not financially viable or secure to do so.
Even though George Osborne is passionate about his plans for the future of the UK’s economy it is likely they will be adapted before going into effect in order to appease those that feel they could be detrimental. Over the next few months Just Landlords will be keeping a key eye on any developments and will update our blog with all the latest news.