Philip Hammond’s failure to reverse the previous chancellor George Osborne’s deeply unpopular tax reforms will have far-reaching implications for the buy-to-let industry, it has been predicted.
Government plans to strip buy-to-let landlords of mortgage interest tax relief will have a “detrimental impact” on households up and down and the country, according to David Hannah, principal consultant, Cornerstone Tax.
From next month, landlords will start to lose the right to tax deduct their mortgage interest costs at the rate they pay income tax - currently up to 45%. Instead, they will see this fall over the next three years and replaced with a 20% tax credit.
Hannah has criticised the move, claiming it will result in rent increases for tenants across the UK.
Responding to yesterday’s spring statement, the tax expert said: “With real estate representing 21% of the UK economy, it is a mystery as to why the government persists in hindering a crucial sector, by creating an unnecessary burden on tenants, landlords and homeowners.”
He insisted that the “double blow effect wiping out the buy-to-let economy”, namely the restricted mortgage interest relief for landlords from April 2017 to the basic rate of income tax, and the 3% stamp duty surcharge on additional properties, “doesn’t chime with the current socio-economic needs of the UK”.
The principal consultant continued: “The demand for rental accommodation is set to rise by one million households in the next five years - a combination of restricted access to mortgage finance, unaffordability created through eyewatering SDLT rates, and a shift in labour market trends towards a more mobile workforce.
“Yet the government continues to breakdown the very sector that has absorbed change and provided homes for those who simply either cannot afford or do not wish to commit to homeownership.
“With the sector currently in its fourth consecutive quarter of decline, paired with a fall in homeownership rates, we are fast approaching a new type of housing crisis."
Hannah is urging the government to stop “their obsession with homeownership” and “think carefully” about what our country really needs – “an accessible, flexible and affordable housing supply”.
“The private rental sector, where buy-to-let landlords are a major contributor, provides just that,” he added.
As for future challenges, the growing popularity of zero hour contracts where it is near impossible to obtain a mortgage, will impose further pressure on the rental market, according to Hannah.
He continued: “Interestingly as the UK government is the widest user of these contracts, it remains to be seen where they anticipate our public-sector workers will be able to live.”