"Buy-to-let investors aren’t showing signs of being easily deterred, despite the Government’s crackdown"
The changes to mortgage tax relief came into effect recently which means buy-to-let investors can no longer offset all their mortgage interest against their profits. Furthermore, by 2020, none of the interest will be tax-deductible.
Currently, under the new law which came into effect on 6 April, landlords can offset 75 per cent of their mortgage interest against profits, but this will be reduced by 25 per cent each year, until it reaches zero in 2020.
Fortunately, landlords have had adequate prior notice of the tax changes, after they were detailed in George Osborne’s 2015 budget, and the four-year phasing in process will help investors adapt to the changes.
Higher rate taxpayers will bear the brunt of the impact, although a significant number of landlords could move into that higher rate tax bracket over the next four years if their rental income increased, given the current strong rental market.
As I’ve touched upon previously, investors appear to have taken various steps in order to weather the changes, including forming limited companies and switching to commercial and semi-commercial property investment instead of residential.
Others are believed to be looking at adapting their property portfolio so they don’t take as much of a financial hit; for example, selling up London properties where tax-applicable profits tend to be higher, and investing in more cost-effective buy-to-lets elsewhere in Britain where rental yields are higher.
Ultimately, only time will tell how the changes will affect property investors, and how they will adapt their business models to ensure maximum profitability, but the market’s resilience to previous changes to buy-to-let, in particular the three per cent stamp duty hike last year, should instil confidence.
Buy-to-let investors aren’t showing signs of being easily deterred, despite the Government’s crackdown. With historically low interest rates, a broad offering of buy-to-let mortgages, a shortage of housing in the UK and a growing rental market, property is still seen as an attractive investment option.