George Osborne’s Buy-to-Let changes will be a blow for landlords, those who rent and professional businesses who provide Buy-to-Let services, warns Lorraine Lockie, Managing Partner and Head of Residential Property at Gorvins Solicitors.
The blow will be especially hard for higher earning landlords who currently benefit from relief of up to 45%, as tax relief on private rented homes is set to be capped at 20%. The changes will come in over four years from 2017 and once implemented, they are likely to have a substantial impact on the market.
Presently, Buy-to-Let landlords can offset their mortgage interest payments across their income, something which homeowners of private property cannot.
This may be construed as unfair, however, Buy-to-Let landlords are running a business. The buy to let sector is currently an attractive investment for pensioners in particular, whose savings earn very little in this low-interest environment. At this critical period of economic recovery, the government should not be stifling hard-working business men and women when so much growth in the economy is stimulated by SMEs.
Many of our Buy-to-Let landlords will curtail further investment as a result of the changes set to take place. We have seen a boom in the Buy-to-Let area in recent years, but Mr Osborne’s changes will purposely slow down an expanding market, and restrict supply of much needed housing stock for those who cannot afford to buy.
Reducing tax relief may well encourage landlords to increase their rents to maintain their net income. If landlords don’t increase the amount they charge, their profits will be reduced, perhaps entirely. Some landlords, who have saved up for many years to invest in a property to secure their own future, will also be affected. Some of them may now give serious thought to selling the rental property they have worked so hard to acquire.
More and more people, including couples and young professionals, choose to rent to suit their lifestyle. Increases in rent will result in lower disposable income, which might even result in much lower than expected growth rates in the economy.