A major shake-up of the buy-to-let housing market could be about to take place, after the Chancellor announced plans to change mortgage tax relief for landlords. In his Summer Budget speech, the chancellor said that the relief will be cut to 20%, from 40-45%, in an effort to “level the playing field” between buy-to-let landlords and ordinary house buyers.
Experts suggest the move is a “significant change” for those with a rental portfolio – but how exactly will it affect them?
Grainne Gilmore, head of UK residential research at Knight Frank, said those planning to purchase a new property will need to factor the new rules into their calculations and that this could affect the offers they are willing to make. If you’re planning on buying a property, consider how much your costs will rise, added Phil Nicklin, real estate partner at Deloitte.
“This measure will almost double the effective cost of borrowing for a taxpayer on the highest rate of tax. Currently interest payments of £100 only cost £55 after tax relief, but will cost £80 from 2020. A landlord who borrows at even a modest level might end up paying more in tax than he makes in profit.”
George Spencer, chief executive of online lettings agent Rentify, added that costs aren’t just the obvious ones – they can also include high street lettings agent fees, home insurance, maintenance and repairs costs, as well as council tax and any ground rent.
“Mortgage interest relief often makes up a large proportion of deductible costs for landlords, and reduces their tax bills significantly.”
Robert Walker, Pricewaterhouse Cooper’s real estate partner, suggested that the measures ultimately may backfire and hit people who are having to rent, rather than landlords.
“We could see buy-to-let investors feeling the squeeze and putting up rents. This would have a major impact on Generation Rent.”