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The government is ‘wiping out the buy-to-let economy’

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.”

  • gwyndaf pritchard

    Of course they. The gov think tank is at work. The deal between the bank of England lending to gov is that on condition that the gov helps to create more mortgages via fist time buyers. Which is a lot of revenue for the banks, once you have a mortgage and on the property ladder you will borrow more in time and never go back to renting, so hooked for life. Trouble is the young ones have seen their parents paying all their life , including maintenace of 'their home' and lots of them splitting up because of high mortgage payments that could not be met sometimes. Can you blame them for opting for a less hassle free life where there is no comitment. Nice cars and holidays etc.
    Also the goverment are killing two birds with one stone, how many landlords will give up their investments selling up and flooding the market with cheap housing.
    Gwyn

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    Once again there seems to be no logic in the approach from government

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    Its nothing to do with logic. They could raise MORE money with less destructive measures, but they dont want to. They want to be seen to be kicking landlords (but are either too thick, or don't care, to realise the effect this then has on tenants). Those landlords will never forgive them. Forcing up rents and evictions, devastating businesses and pensions, preventing the conversion of stock or rebuilding of derelicts, all completely unnecessarily, is unforgivable. Idiots.

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