Changes To Buy To Let Market In Budget
Last Wednesday, Chancellor George Osborne laid out his Summer Budget, which surprised many in the media with its introduction of a living wage and attacks on the non-domicile status. However, it also contained further changes to the property market, many of which could negatively affect landlords.
Mortgage Interest Relief and the Buy to let Market
The decision by the government to cap the amount on mortgage interest relief for landlords has been received by the industry as a severe blow to the buy to let market. The new legislation, which will begin to come into force in April 2017, will see the rate of interest relief that landlords currently enjoy slashed from 40%- 45% over a four year period by 50%, culminating in a final rate of just 20% in 2020.
The aim is to address the unfair advantages that the government feels the landlords have over regular homebuyers (those who buy property to live in). Their belief that everyone should pay the same basic rate of 20% fails to understand that buy to let is a business and as such, the costs of running this business should not fall into the same taxation rules as other property owners.
The previous legislation allowed landlords to right off numerous expenses from any of the rental income they received on a property. However, many experts have warned that the new rules could cause a break down in the buy to let market since landlords may be forced to pass on any extra costs to tenants, perhaps by raising the rent by as much as 10%.
Loss of Rental Stock
But it’s not just the area of rising rents that experts fear a problem. Many suspect that middle class or ‘amateur landlords’, who only own one or two properties may choose to leave the business altogether. For this type of landlord the choice to invest in bricks and mortar came with the reduction of interest rates which for years were set at 0.5%. With their savings gaining so little money, many believed they could invest in the buy to let market and see out their retirement with a comfortable nest egg. The problem is that should the amateur landlord leave the market, it could well result in a loss of much needed rental stock.
More Bad News for Landlords…
Landlords were on the receiving end of another hit last week. From April 2016 landlords will lose the ability to get tax relief on their wear and tear allowance. Essentially under the old law landlords could claim 10% of rental income to cover costs such as improving furnishings or damages or breakages, regardless of whether such improvements needed to be made. However, the new rules state that only actual improvements will be allowed to be written off and that documentation will need to be provided. Through this change in the law the government wants to give landlords an incentive to improve the living standards of their tenants while ensuring that the property remains in good condition.
At present it is difficult to say what these changes will have on the rental market, but if industry experts are to be believed these changes will only make it harder for tenants and landlords alike. We can only speculate at the moment, but keep your eyes open for upcoming news, and remember to contact Assetgrove if you have any questions.