The Chancellor announced a major change to buy-to-let mortgage interest relief in today’s Budget.
George Osborne said he wanted to create a more level playing-field between those buying a home to let, and those who are buying a home to live in.
He 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.”
While the Treasury will retain mortgage interest relief on residential property, it will now restrict it to the basic rate of income tax.
It will phase in the withdrawal of the higher rate reliefs over a four year period, and only start withdrawal in April 2017.
Alex Hammond, Kensington’s 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: “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.”
