Buy-to-let landlords could lose thousands of pounds a year after Chancellor George Osborne limited tax relief on mortgage interest payments yesterday's Budget.
From 2017 a new system will be phased in that restricts relief to 20% rather than the 40% or 45% currently available to some buy-to-let investors.
Chancellor George Osborne said the measure was necessary to reduce the risk to the UK’s financial stability that a rapidly growing buy-to-let sector could pose.
Russell Quirk at online estate agent eMoov warned the move will be costly for existing landlords: "Based on the average rent they could be up to £2,000 worse off each year.”
Brian Murphy at brokers the Mortgage Advice Bureau said the Budget could have been even worse for buy-to-let investors, as many feared that tax relief would be abolished altogether. “The decision to halve the 40% tax relief may not be popular, but will be far easier for landlords to adjust to.”
But he said it is unfair that buy-to-let investors are being blamed for the housing crisis, which can only be remedied by a large programme of housebuilding.
Jane Guaschi at insurer Direct Line said the change could undermine the rentals market. “The reduction of mortgage tax relief for owners of buy-to-let properties will have a significant impact on the income generated by landlords across the country.
"It may see landlords forced to increase rents for tenants, or to leave the market reducing the housing stock available for rent. Landlords will also have fewer funds to invest in the upkeep of their properties.”
Alex Hammond at specialist lender Kensington said anyone considering becoming a landlord should now think again. “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,” Hammond said.
“As the Chancellor said, buy-to-let has been a massive success story and that should remain the case.”
But Russell Gardner, EY’s UK head of real estate, said the proposed changes would impact “only a very narrow group”.
“It hits UK individuals rather than professional outfits or non-residents,” Gardner said. “Landlords need to be both a higher-rate income tax payer and a UK resident to be within scope, and at HMRC’s own estimate it will only hit 1 in 5 of individual landlords.”