Political risk and investing lesson number one: don’t be an easy target

The chancellor has made it clear that he has buy-to-let investors firmly in his sights. John Stepek explains what it means for the economy, and for the property market.


George Osborne hit buy-to-let-landlords where it hurts in the Autumn Statement

Here's my tuppence worth on George Osborne's big day yesterday.

There'll be a lot to unpick from all this, and I'm sure there are plenty of tricky little bits of small print that need to come out in the wash.

My colleague Alex Williams has writtena more detailed piece on two of the biggest winners from an investment perspective, and Matthew Partridge looks at the main points and what they mean for the economy, but for me, the biggest lesson was this if you're an easy political target, then you need to watch your back.

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I'll U-turn if you want me to unless you're a landlord

Yesterday, the chancellor U-turned on tax credits, because it was hard to push through. He U-turned on cuts to the police, because they were hard to push through.

But buy-to-let landlords? They complained loud and clear about the changes to their tax relief which will render plenty of buy-to-lets unprofitable within a few years.

However, no U-turn was forthcoming. Instead they got hit even harder there'll now be a 3% added stamp duty charge on anyone buying a second home or rental property over £40,000.

The idea is to level the playing field somewhat between buy-to-let landlords and first-time buyers, by driving up costs for buy-to-letters. (James Ferguson of the Macrostrategy Partnership has written a lot about this in MoneyWeek). And it does somewhat.

But the biggest impact might be from the chilling' effect, rather than the financial aspect.

Here's what I mean. The slightly desperate estate agent spin is that this will bring forward a whole load of buy-to-let and second home purchases, with the aim of beating the introduction of the new tax in April 2016. Thus, house prices will be driven higher.

There might be an element of truth to this. If you want to buy a second home, rather than an investment property, then beating the rush might make sense.

But if you're looking for an investment, I'm not so sure.

Landlords: the punch-bag that keeps on giving

It's pretty clear from this that the chancellor has buy-to-let investors firmly in his sights. For a Conservative chancellor with leadership ambitions, they make a wonderful punching bag.

For one thing, there aren't that many of them. So you can alienate them without worrying too much about the political consequences. And no one else is going to stand up for them. Young people struggling to pay for housing see them as competition, or bloodsuckers landlords have never been the most cuddly demographic (though I hasten to note that they're still more popular than politicians, estate agents or journalists).

A party's attitude to property is also a fantastic branding tool. For Labour, the rise of the amateur landlord and constantly rising house prices were emblems that the party had changed. You too could aspire to be a property millionaire one day, and Labour was totally cool Britannia' with that.

Now the Tories are using buy-to-let landlords to show that they've changed too. They're not the party that protects vested interests and the property-hoarding classes. They're not about entrenching inequality. They're all about opportunity for all. Hard-working first-time buyers vs predatory rentiers? The Tories are with the strivers every step of the way.

Better yet who else are these disenfranchised landlords going to vote for? Anyone think they'll get a fairer hearing from Jeremy Corbyn, and his wee red book?

Didn't think so.

In short, you can whack them all you want at very little cost to your own base, and with the potential of big gains from others who might not traditionally have voted for you. It's brutal political calculus.

From a personal point of view, I hold no brief for the buy-to-let industry. But the distortions in our housing market have far more to do with the fact that money has been dirt-cheap for far too long, and governments have gone out of their way to prop up prices for going on a couple of decades now.

If you're gawping at the prices you have to pay, then that's where the blame lies. Osborne is simply using the symptoms arising from the ridiculous distortions in the British property market for political gain, and in many ways is just making things even worse by doing so.

We now have every category of buyer and owner being treated differently. First-time buyers get types of taxpayer-backed loans that aren't available to movers, who in turn are treated differently to second-home buyers. It's a mess, and it's hardly what you'd call a proper free market.

But that's all by-the-by.

Any sensible person can see that the writing is on the wall for amateur landlords here. I wouldn't be rushing to bring forward my buy-to-let purchases I'd be looking for the exit before the next Budget rolls around.

We'll have more on prospects for the British housing market in our forthcoming MoneyWeek property roundtable look out for it. If you're not already a subscriber, sign up here now so you don't miss it.

John Stepek

John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.