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| Osborne's tax-relief cut for landlords 'could lead them to put up rents' | |
| (35 minutes later) | |
| A cut in the tax relief available for buy-to-let landlords could lead them to push up rents, it was claimed on Wednesday. | |
| The budget announced plans to reduce the amount of tax relief investors can claim on mortgage interest payments, in a move the chancellor said would level the playing field for homebuyers and investors. | |
| However, experts suggested that aspiring first-time buyers could end up paying higher rents as investors looked to recoup lost profits. | |
| The amount landlords can claim as relief will be set at the basic rate of tax, currently 20%, with the change introduced over a four-year period from April 2017. | The amount landlords can claim as relief will be set at the basic rate of tax, currently 20%, with the change introduced over a four-year period from April 2017. |
| Related: Budget 2015 live: Osborne announces new national 'living wage' of £9 an hour | Related: Budget 2015 live: Osborne announces new national 'living wage' of £9 an hour |
| Currently, investors can claim tax relief on their monthly interest repayments at the top level of tax they pay, meaning some are benefiting from relief of up to 45%. The relief is estimated to cost £6.3bn a year, and critics have said it gives landlords an advantage over first-time buyers. | Currently, investors can claim tax relief on their monthly interest repayments at the top level of tax they pay, meaning some are benefiting from relief of up to 45%. The relief is estimated to cost £6.3bn a year, and critics have said it gives landlords an advantage over first-time buyers. |
| In his budget speech on Wednesday, George Osborne said: “Buy-to-let landlords have a huge advantage in the market as they can offset their mortgage interest payments against their income, whereas homebuyers cannot. And the better off the landlord, the more tax relief they get.” | In his budget speech on Wednesday, George Osborne said: “Buy-to-let landlords have a huge advantage in the market as they can offset their mortgage interest payments against their income, whereas homebuyers cannot. And the better off the landlord, the more tax relief they get.” |
| He said this had contributed to the rapid growth in buy-to-let properties, which accounted for more than 15% of mortgages taken out this year, and had caused the Bank of England to sound a warning about the market. | He said this had contributed to the rapid growth in buy-to-let properties, which accounted for more than 15% of mortgages taken out this year, and had caused the Bank of England to sound a warning about the market. |
| “So we will act – but we will act in a proportionate and gradual way, because I know that many hardworking people who’ve saved and invested in property depend on the rental income they get,” he added. | “So we will act – but we will act in a proportionate and gradual way, because I know that many hardworking people who’ve saved and invested in property depend on the rental income they get,” he added. |
| The budget document revealed that a second raid on landlords’ tax breaks is planned from April 2016, when the current system that allows those to claim 10% of their rent for wear and tear will be scrapped. From that date, landlords will only be able to deduct costs they actually incur. | The budget document revealed that a second raid on landlords’ tax breaks is planned from April 2016, when the current system that allows those to claim 10% of their rent for wear and tear will be scrapped. From that date, landlords will only be able to deduct costs they actually incur. |
| The gradual removal of tax relief is expected to bring the Treasury £225m in 2018/19, rising to £665m in 2020/21, while the removal of the 10% wear-and-tear allowance is forecast to make £205m in 2017/18, falling to around £165m in subsequent years. | The gradual removal of tax relief is expected to bring the Treasury £225m in 2018/19, rising to £665m in 2020/21, while the removal of the 10% wear-and-tear allowance is forecast to make £205m in 2017/18, falling to around £165m in subsequent years. |
| Duncan Stott, director of affordable house price campaign PricedOut, welcomed the announcement. “For too long, buy-to-let landlords have been using an unfair tax break to outcompete first-time buyers and drive house prices further out of reach,” he said. | Duncan Stott, director of affordable house price campaign PricedOut, welcomed the announcement. “For too long, buy-to-let landlords have been using an unfair tax break to outcompete first-time buyers and drive house prices further out of reach,” 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.” | “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.” |
| Adrian Anderson, director of Mayfair-based mortgage broker Anderson Harris, said the changes were not as bad as landlords had feared. | Adrian Anderson, director of Mayfair-based mortgage broker Anderson Harris, said the changes were not as bad as landlords had feared. |
| “It is only fair that there is a more level playing field between first-time buyers and landlords, but if this tax break had been completely withdrawn, buy-to-let would have been far less attractive to investors,” he said. | “It is only fair that there is a more level playing field between first-time buyers and landlords, but if this tax break had been completely withdrawn, buy-to-let would have been far less attractive to investors,” he said. |
| “Thousands of landlords may well have struggled to keep up repayments on their mortgage or struggle to pay the tax, especially when interest rates rise.” | “Thousands of landlords may well have struggled to keep up repayments on their mortgage or struggle to pay the tax, especially when interest rates rise.” |
| Related: Budget 2015: 25 key points at a glance | Related: Budget 2015: 25 key points at a glance |
| However, Robert Walker, real estate partner at PwC, said the changes did nothing to address the fundamental lack of supply in the UK housing market and could ultimately backfire on tenants. | |
| “We could see buy-to-let investors feeling the squeeze and putting up rents. This would have a major impact on Generation Rent. Moreover, if interest rates increase over the coming years, and rental yields don’t keep pace, investors could be paying tax on a loss,” he said. “The chancellor is concerned about the level of funding in the buy-to-let market but today’s proposals don’t tackle this head-on.” | |
| The property website eMoov said that, based on average rents, landlords could be up to £2,000 a year worse off as a result of the change. Its founder, Russell Quirk, said: “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.” | |
| Peter Mackie, senior partner at buying agent Property Vision, said time would show if the rental market could support further price increases. He added: “We are not expecting this to have an adverse effect on the buy-to-let market or the overall appeal of investing in the property market.” | |
| Osborne also announced an increase in the amount of money homeowners can earn in rent from lodgers before they face a tax bill. The maximum amount covered by the rent-a-room scheme has been set at £4,250 for the past 18 years, but will rise to £7,500 from April 2016. | Osborne also announced an increase in the amount of money homeowners can earn in rent from lodgers before they face a tax bill. The maximum amount covered by the rent-a-room scheme has been set at £4,250 for the past 18 years, but will rise to £7,500 from April 2016. |