Landlords have slammed George Osborne’s July budget after the chancellor announced that tax relief would be cut for landlords with buy-to-let mortgages.
Some are now predicting rent increases for tenants as landlords attempt to make up for the fact that they will lose the relief on their mortgage interest payments.
The tax change will be phased in between 2017 and 2020 and some experts are predicting that this will deter some people from investing in the property market. In turn, this could lead to higher rents and even fewer available properties in a market where demand already outstrips supply in many areas.
Sequre Property Investment’s MD Graham Davidson said that George Osborne’s announcement was an example of a lack of understanding about the workings of the property market amongst politicians. He also believes that it directly contradicts the Government’s previous pledges to improve the private rented sector. Mr Davidson said that landlords should have the same freedom as other business owners to deduct costs.
Knight Frank’s UK residential research head, Grainne Gilmore, said that the plans would mark ‘a significant change’ for landlords in terms of their tax status.
She said that people looking to invest in buy-to-let properties must factor in the changes when considering their finances. This may well affect the price they are willing to pay for a property, she added.
Ms Gilmore suggested that if the South and other areas of England were still experiencing the low yields currently being seen when the tax changes take effect, it is possible that rents will rise as the need for rental properties continues, particularly in the UK’s city centres.
HW Fisher & Company’s Jamie Morrison agrees that higher rents are likely, both as a result of landlords looking to protect their income and as a result of some choosing to leave the market altogether, lowering the number of available rental properties and causing rents to rise still further.
eMoov CEO Russell Quirk warns that landlords could be as much as 20 per cent worse off as tax relief of a maximum of 45 per cent is withdrawn. Based upon average rental incomes, this could equate to around £2,000 a year.
The rent increases anticipated to result from the changes could have a far-reaching effect on the property market as a whole. They may limit the amount renters can save to take their first steps on the property ladder, in addition to potentially impeding mortgage activity and reducing demand coming from property investors. This could have an adverse effect on lending figures.
The Intermediary Mortgage Lenders Association’s Peter Williams said the chancellor’s announcement was aimed at gaining widespread approval amongst the population but pointed out that tax benefits have never been the major driver when it comes to growth within the rentals market.
He pointed out that private landlords must abide by taxation rules in terms of both rental income tax and capital gains tax and that, in fact, two thirds of all properties that have entered the private rentals market since 2007 have not had an associated buy-to-let mortgage in any case.