Landlords' plans will change in wake of tax relief cut

Wednesday’s budget proved a grim viewing for those who have worked in the rental sector for some time and watched the rise of the buy-to-let landlord.

With the Private Rental Sector (PRS) now accounting for more of the housing market than at any time in history, buy-to-let landlords have gone some way to changing the face of the UK market.

However, the Chancellor has now cut the amount of tax relief they can claim on mortgage interest payments in a move to 'level (the) playing field' between investors and home owners.

For many landlords – myself included – we were looking at freeing up some of our pension cash (recently available to us as part of another Government policy) to invest in the residential property market. But many of those plans may now change.

The Chancellor seems to believe that buy-to-let investors now hold too much of the total mortgage market – at 15% - and that tax relief gave them an unfair advantage over other home buyers.  I can only disagree.

At times during the recession, buy-to-let investors were the only ones confident enough to enter a market that was decimated by economic uncertainty.  They created a supply of available properties at a time when few else would.  

The Government believes that more than £600m can be raised over the coming years to justify its decision to level this playing field but I rather suspect that this will also lead to increases in rents as landlords seek to offset pressure on yields that are already low as it is.

In the south of England where Sotheby’s International Realty predominantly operates, we are seeing a highly competitive market where families are competing for a limited supply of rental housing stock suitable for their space requirements.  

If landlords are struggling to make their sums add up as the rate of introduction comes into play between 2017 and 2020, then they are invariably going to pass this cost on.  

The demand for rental accommodation particularly in areas commutable to the Capital remains in place and this will be another case of the Government pulling one economic level of taxation with another unexpected and potentially detrimental effect.  

*John Fisher is Head of Lettings at Sotheby’s International Realty