Many landlords are likely to have to put up rents because of the Chancellor George Osborne’s decision to withdraw tax relief on buy-to-rent properties. Many landlords feel that the increase is necessary if they want to break even.
A survey by the Residential Landlords Association has revealed that 84 per cent of landlords are considering rent increases because of the withdrawal of tax relief. They believe this to be necessary in order to cover their mortgages and other costs. The tax relief will be cut next April and eventually removed as it is being replaced with a 20 per cent credit against mortgage interest.
The Government is planning to tax landlords on their income rather than taking their allowances into consideration. The present system where landlords deduct costs is in line with general business tax principles where the tax is paid on the profits not revenue. The level of stamp duty paid on buy-to-lets is also increasing.
With many landlords feeling that they cannot absorb these extra costs, it will be their tenants who pay the price of the Government’s tax changes. RLA chairman Alan Ward said that landlords will have to put up rents if they want to stay in business so tenants will either have to pay higher bills or find somewhere else to live.
These changes are being implemented at a time when there is a shortage of good quality rental properties on the market. The RLA is calling on the Government to have a change of heart and to make changes to the Finance Bill so that landlords and their tenants are not penalised.
Another survey by Kent Reliance indicates that four in 10 landlords, who were asked, are planning to raise rents by approximately 5.6 per cent in the next six months with the reduction in mortgage tax relief being cited as the main reason for doing so. The average monthly rent is now £872 so any hike will hit tenants hard.
The tax changes are not expected to help the UK’s housing crisis where the demand for properties outstrips the number of new houses. The answer is to build more homes, to which the Conservatives are committed. But progress has been slow.
More than 13,000 homes are being ‘fast-tracked’ on four areas of publicly-owned land as well as £1.2 billion being invested to help developers build on brownfield sites. But these will take time to build and will not solve the problem which has been exacerbated by the Budget.