Tax relief for BTL investors to be reduced

In what Osborne promised would be  'proportionate and gradual' action, the government will now restrict mortgage interest relief on residential property to the basic rate of income tax for buy-to-let investors.

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. For the wealthiest, every pound of mortgage interest costs they incur, they get 45p back from the taxpayer.

"All this has contributed to the rapid growth in buy-to-let properties, which now account for over 15% of new mortgages, something the Bank of England warned us last week could pose a risk to our financial stability. 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."

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.”  

Henry Woodcock, Principal Mortgage Consultant at IRESS, added:
 
“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."

Rob Jupp, CEO of Brightstar, commented:

“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.”