Mr Osbourne said: "The government will restrict the relief on finance costs that landlords of residential property can get to the basic rate of income tax. The restriction will be phased in over 4 years, starting from April 2017. This will reduce the distorting effect the tax treatment of property has on investment and mean individual landlords are not treated differently based on the rate of income tax that they pay. It will also shift the balance between landlords and homeowners."
Alex Hammond, Kensington Head of Market and Communications, said: “The cut in mortgage interest tax relief to the basic rate for buy-to-let investors should concentrate the minds of anyone planning on becoming a landlord.
Everyone likes a generous tax break but the reality is that landlords should not be investing simply for the tax relief and that remains the case after the Budget announcement. As the Chancellor said buy-to-let has been a massive success story and that should remain the case even after the Budget. Specialist lenders are committed to the market and there is still a strong case for expansion.”
Private rental sector will pay the price of a so called “level playing field”
Russell Quirk, founder and CEO of online estate agent eMoov.co.uk commented: “George Osborne’s intention to level the playing field between landlords who buy property to let and those who buy to live, is going to 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 £2000 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.”
John Goodall, CEO of peer-to-peer mortgage lender Landbay, said: “It may be fun to pillory landlords or make for good Punch and Judy politics, but the claim that landlords have a tax advantage over owner occupiers is nonsense.
In the past homeowners were taxed on the rents the property would earn if it was rented so that both landlords and homeowners were equal - but that was scrapped in the 1960s. If we still had this system homeowners would pay far more tax today. And unlike landlords, homeowners are exempt from capital gains tax. Buy-to-let is a business, and businesses pay tax on profits which is why until now interest on mortgages is tax free for them.
These changes mean that landlords need to avoid binge borrowing and it means that lenders need to make sure that landlords borrow sustainably, by having high underwriting standards. Everyone in the property market benefits from a stable private rented sector.
The debate on this tax grab on landlords will be loud and long, but when the dust settles nothing much will have changed: professional landlords that don’t borrow too heavily will easily be able to take this in their stride.”
Phil Stewardson, Owner of Stewardson Developments believes the new budget will lead to an increase in home rental prices: "The Chancellor, George Osborne, has announced a major blow in his budget for Buy-To-Let landlords with mortgage interest relief being restricted to basic rate of income tax - this massively under-estimates the importance of small scale landlords who make up the vast majority of the sector.
A consequence of this will be increased rents. This is a knee-jerk reaction and ignores the real issues within the housing sector which are lack of supply and availability of finance.
Many small investors who have saved hard or used their pension pot to buy will probably now re-think their investment and sell their property, because as interest rates rise, interest costs will increase and investors will face losses. Selling-up will further reduce the supply of available rented accommodation which will push rents even higher.
Larger corporate landlords holding their properties in a Ltd Co will be unaffected by this and in time benefit from the reduction in corporation tax."
Peter Williams, Executive Director of IMLA, comments: “With details of planning changes deferred until Friday, today’s Budget delivers significant changes to tax relief for buy-to-let mortgages and also Support for Mortgage Interest (SMI) payments. Given the lack of prior consultation on either measure, it is a relief that the timescales leave room for lenders and borrowers to adapt.
Reducing landlords’ mortgage tax relief is likely to prove a populist measure but the idea that tax benefits have been a big driver for growth in the private rental sector is flawed. Unlike homeowners, private landlords are still subject both to capital gains tax and tax on rental income, subject to allowable deductions for most costs. It also overlooks the fact that two in three properties entering the private rental sector since 2007 have done so without the support of buy-to-let mortgages.
Anyone expecting this change to result in a great levelling of the playing field in the housing market is destined to be disappointed. Following comments from the Bank of England last week, it is also a worrying sign of the growing trend to talk down buy-to-let and the private rental sector, rather than address the chronic lack of housing that is putting such pressure on first time buyers as the UK population grows.
The fact the government will only provide SMI payments as loans from 2018 shows it wants homeowners to stand on their own two feet financially. But with rates certain to rise by then, the move is likely to increase the pressure on those households who are already the most vulnerable. Presumably government will provide the new SMI loans rather than expecting lenders to do so. But it remains to be seen what further steps will be taken in the meantime to create a fairer housing market that puts less pressure on individuals’ household finances.”
Rob Jupp, CEO of Brightstar, said: “The budget was surprisingly light on information to boost the housing market. The announcements on the mortgage interest rate for buy-to-let to the lower rate tax band is likely to have quite an effect though and could well dampen the market. Ironically not for the lower end ‘accidental’ landlords who are less likely to be disadvantaged by the move and not for company schemes who invest in property. Measures have been needed to create more of a balance for first time buyers who have often been disadvantaged by investors with a greater means to buy, so time will tell whether this announcement goes a step towards readdressing the balance.
What we really needed to hear were measures as to how more housing will be built to ease up the supply and demand issues. The planning announcement on Friday needs to make it easier to build more houses especially in brown field areas in order to help keep house prices under control, although the markets don’t seem optimistic for house building prospects as the shares in house builders have already dropped since the budget.”
Graham Davidson, managing director of Sequre Property Investment, says: “Despite a phased approach, the reduction in tax breaks for landlords will make buy-to-let a much less attractive proposition, ultimately discouraging investment in the sector and reducing the amount of rental stock available, which will push rents up.
As per Labour’s proposed rental caps and controls, this is another example of politicians not understanding how the market operates, directly contradicting their apparent goals for an improved private rented sector. Landlords should be free to deduct legitimate costs, just like any other business does.”
Gráinne Gilmore, Head of UK Residential Research at Knight Frank, commented: “This is a significant change in tax status for those with a rental portfolio, although the measured rate of introduction between 2017 and 2020 will help landlords plan their approach.
Those planning to purchase a buy-to-let property will have to factor these new rules into their calculations, and this could affect the offers they are willing to make. If the relatively low yield environment seen today, especially in the South of England, is still evident when these changes start to come into force, there could be upward pressure on rents.
The need for rental accommodation is strong, and we expect this trend to continue, especially in city centre markets around the UK.”
Benson Hersch, CEO of the ASTL, says “Clearly the government is either optimistic about the future or worried about how politically digestible austerity programmes are. The restriction of tax relief on BTL interest for individuals may accelerate the move to using companies, especially since corporation tax is reducing. Overall, the effect on the property market will probably be neutral and on the general economy will be positive.”
Henry Woodcock, Principal Mortgage Consultant at IRESS, had this to say: “The potential revenue generated by cutting the tax relief on buy to let mortgage interest was clearly a draw for the Chancellor, but it may trigger unintended consequences. Buy to let has been the key area of growth in the mortgage market, and changing its tax treatment is likely to dampen mortgage activity and demand from property investors, which will hit overall lending figures. Equally, we may see a number of landlords leave the market if their costs rise, which in turn will lower the potential revenue of the move.
Finally, while this may slow house price growth, it may not be an unqualified success for first time buyers. For those landlords that remain in the market, they may need to increase rents to cover increased financing costs, and higher rents will make it more difficult for prospective buyers to build their first deposits."
