Will BTL tax cuts put landlords off?

Following the Chancellor’s summer Budget, in which he announced a substantial crackdown on mortgage interest tax relief,

Related topics:  Landlords
Warren Lewis
9th July 2015

The amount landlords can claim as relief will, from 2017, be set at the basic rate of tax – currently 20 per cent, in a move which is said to 'level the playing field for homebuyers and investors’. Whilst some industry experts believe this will cool the buy-to-let market, making property investment less attractive,

Brendan Cox, Managing Director of Waterfords which operates across Surrey, Hampshire and Berkshire, says he doesn’t feel it will have a substantial impact.

He comments: “I don’t think people will be put off.  Buy-to-let investment still offers a good opportunity for people to make money from capital growth and most people consider the long-term gain over the immediate income. There are still some good yields to be had on a monthly basis, and granted, landlords aren’t going to be able to make quite as much money, but the gains are so big in others areas I would be surprised if this rocked the market very much.

In trying to cool the property market, the government may have created an even bigger problem for tenants because landlords may look to recoup some of the loss through rental income. In our experience, such is the shortage of properties available, that anything we take on the market is snapped up immediately therefore, landlords could probably add an extra 5-10% and still find willing tenants.

Initially the increase in inheritance tax allowance won’t have much of an impact. The most notable difference will be that elderly people, who previously might have downsized to divide up their funds in advance, will now remain in their homes safe in the knowledge their offspring will not have to pay a large tax bill upon their death.”

Brian Murphy, Head of Lending at Mortgage Advice Bureau (MAB), believes that the restrictions on buy-to-let mortgage interest tax relief announced in the Budget will almost come as good news to those landlords who feared it would be completely abolished.

"Totally removing the tax relief could have led to significantly reduced profits for borrowers who pay above the basic rate of income tax, particularly as mortgage interest represents a significant proportion of landlords’ annual costs. The decision to halve the 40% tax relief may not be popular, but will be far easier for landlords to adjust to.

A complete removal of mortgage interest tax relief could also have led to higher rents for tenants in order to help cover landlords’ financial loss. However, the more limited restriction on tax relief is being gradually introduced over four years from April 2017, so landlords have plenty of time to forward plan how they will adjust to the changes without resorting to sudden hikes in rents.

Landlords are often unfairly used as scapegoats for the problems facing the residential housing market. Although housebuilding has picked up recently, planning, provision of materials and suppliers and industry capacity is still at a relatively low level compared with the number of properties needed.  The Government must now focus on a comprehensive long-term house building plan to work alongside wider plans for the economy."

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