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Tax relief blow for landlords – the industry reacts

Experts warn that rents will rise after Chancellor George Osborne announced a cut in tax relief to landlords in the summer budget.

Tax relief on buy-to-let interest payments will be restricted to the 20% basic rate tax with the changes phased in over the next four years.

Robert Walker, PwC real estate partner, said the tax changes do nothing to address the fundamental lack of supply in the UK housing market. 


"We could see buy-to-let investors feeling the squeeze and putting up rents. This would have a major impact on Generation Rent,” he warned, "Moreover, if interest rates increase over the coming years, and rental yields don't keep pace, investors could be paying tax on a loss.”

CEO of online estate agent eMoov.co.uk Russell Quirk, agreed that cutting landlord tax relief will have financial consequences for renters in the private sector.

“Landlords are going to be up to 20% worse off as previously enjoyed tax relief rates of up to 45% soon disappear. Based on the average rent they could be up to £2,000 worse off each year. I can only see the result being an increase in rental prices which in turn further hampers those trying to save to get on the property ladder,” he said.

Adrian Anderson, director of Mayfair-based mortgage broker Anderson Harris, said the tax change was not as bad as it might have been as there had been speculation the tax relief would be abolished altogether.

“It is too simplistic to blame landlords snapping up rental properties for the property shortage. People have to live somewhere, and if they can’t afford to buy, then they must rent,” he said, “With many first-time buyers struggling to get on the property ladder and growing families unable to find the housing they need, housebuilding should be at the centre of the Government’s strategy so we look forward to see what further planning reforms are proposed.”

Unsurprisingly Duncan Stott, director of affordable house price campaign PricedOut, was in favour of the move.

"For too long, buy-to-let landlords have been using an unfair tax break to out-compete first-time buyers and drive house prices further out of reach. This reform will be warmly welcomed by working people who aspire to own their own home instead of paying rent to fund their buy-to-let landlord's mortgage,” he said.

"For the Conservatives to be pro-homeownership, it means they must take action against buy-to-let. We hope this excellent move to bring fairness to mortgage taxation will be just the beginning of the reforms needed to get the housing market into a fit shape for first-time buyers."

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  • icon

    Instead of paying into a private pension scheme, I elected to buy property and have the rental income as my pension. So, it seems my pension will now reduce unless I'm able to increase the rent to match the loss from the extra taxation. Seems there will be no winners except the Government who will spend it unwisely as has been proved in the past.

  • Glenn Ackroyd

    Lets play out the economics on this;

    1) Landlords will sell off stock, reducing house prices in the short term
    2) New landlords will be discouraged from buying
    3) Limited supply of rental houses will mean that supply/demand will push up rents
    4) This 'tax' is a tax on tenants who'll ultimately end up paying more

    (Sshhh - keep it quiet. George has sold this to the public that only landlord's will be effected. Once the tenants feel this, in a few years time, he'll probably be out of his job)

  • icon

    Glenn I think you're completely right except the problem will be much worse. If house prices drop the house builders will reduce output thus keeping prices higher through the excess of demand. Duncan Stott needs to understand the plain dynamics of supply and demand. It's that which is forcing up prices, not Landlords buying properties. If Landlords stop buying it'll make little difference to house prices but as you say, it will make it very, very hard to rent anywhere. With so many people in our country that can't buy because they can't get a mortgage (many of them foreigners) they have to rent. As you say, with less supply rents will rise. I also believe it will be impossible for Landlords to buy up properties because the lenders will increase their 1.25 rent multiple as it won't be safe to lend to someone that has to pay tax on all rent received. The figure could rise significantly and whilst rents are sure to rise I don't think it'll be enough to cover whatever the new multiple will be.


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