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New budget details released by George Osborne
Thousands of buy-to-let landlords will see their earnings hit after George Osborne cracked down on mortgage interest tax relief in his summer Budget today.
In a move which will 'level the playing field for homebuyers and investors', according to the Chancellor, the amount landlords can claim as relief will be set at the basic rate of tax – currently 20 per cent.
This change will be phased in over a four-year period from April 2017. Currently, landlords can claim tax relief on monthly interest repayments at the top level of tax they pay of 45 per cent. Mortgage interest relief is estimated to cost £6.3 billion a year, a Freedom for Information request revealed recently.
It will hit middle-class landlords who have a sole buy-to-let property right through to professional landlords with bigger portfolios, who sit in the highest tax bracket.
Some experts believe the move could also force landlords to hike rents to compensate for the blow, which would spell bad news for tenants.
But it could be good news for first-time buyers who are competing with landlords on the property market which is currently seeing demand outstripping supply.
The move comes as the Bank of England said last week it will monitor the booming buy-to-let sector in the coming months. This year, buy-to-let lending has accounted for more than 15 per cent of mortgages taken out.
It also comes after the National Landlords Association warned yesterday that costs in the private rental sector could rise by up to £2.6 billion if mortgage interest payments for the buy-to-let sector were made non-deductible.
Many experts have previously said the 45 per cent tax relief puts landlords at an advantage in the property market against first-time buyers.
In the budget document, it says: 'The current tax system supports landlords over and above ordinary homeowners. Landlords can deduct costs they incur when calculating the tax they pay on their rental income. A large portion of those costs are interest payments on the mortgage.
'Mortgage Interest Relief was withdrawn from homeowners 15 years ago. However, landlords still receive the relief.
'The ability to deduct these costs puts investing in a rental property at an advantage. Tax relief for finance costs is particularly beneficial for wealthier landlords with larger incomes, as every £1 of finance cost they incur allows them to pay 40p or 45p less tax.'
George Osborne said he wanted to support homeownership but 'act in a proportionate and gradual way.'
However, one expert warns some investors could now struggle to turn a profit. Phil Nicklin, from Deloitte, said: 'This measure will almost double the effective cost of borrowing for a taxpayer on the highest rate of tax.
'Currently interest payments of £100 only cost £55 after tax relief, but will cost £80 from 2020. A landlord who borrows at even a modest level might end up paying more in tax than he makes in profit.
'This measure must make buy-to-let investment a less attractive proposition in future and may reduce the options for those who see it as an alternative to a pension.'
Robert Pullen, manager at Blick Rothenberg Chartered Accountants, said: 'Buy-to-let landlords are now being hit further by a restriction to tax relief on mortgage interest payments.
'The new rules appear complex; basic rate tax relief is permitted only and will be phased in. This may result in a shortage of let properties, or an increase in rental rates charged to compensate landlords.'
Gráinne Gilmore, head of UK residential research at upmarket estate agents Knight Frank, said: 'This is a significant change in tax status for those with a rental portfolio, although the measured rate of introduction between 2017 and 2020 will help landlords plan their approach.
'Those planning to purchase a buy-to-let property will have to factor these new rules into their calculations, and this could affect the offers they are willing to make.
'If the relatively low yield environment seen today, especially in the South of England, is still evident when these changes start to come into force, there could be upward pressure on rents.'
The budget document has also revealed the current system that allows those to claim 10 per cent of their rent for wear and tear will be scrapped. From next April, landlords will only be able to deduct costs they actually incur.
The Chancellor also announced an increase in the amount of money homeowners can earn in rent from lodgers before tax. It comes after many campaigned for a higher earning level in the rent-a-room scheme.
The level has been set at £4,250 of income for the past 18 years, but will rise to £7,500 from April 2016.
Matt Hutchinson, director of website Spare Room has campaigned for the last six years for a higher threshold.
He said: 'There are an estimated 19million empty bedrooms in owner-occupied properties in England alone. Freeing up just five per cent of those rooms would accommodate almost a million people - the equivalent of a city the size of Birmingham.
'Encouraging people to take in lodgers could help them avoid repossession when interest rates rise and their mortgage repayments are adjusted.
'The threshold has remained unchanged at £4,250 for 18 years. Only a fifth of UK towns and cities have average room rents of below that mark, while all rooms in London are way outside of the threshold.'
Fancy a pint? - Shop could be turned into second micropub
Maldon High Street could become home to Essex's smallest pub, sounds strange but how will they survive with the imminent opening of Wetherspoon's.
Click here to read Fancy a pint? - Shop could be turned into second micropub.
Much talked about Maldon District Local Development Plan
Having worked in the property sector for many years and for the past four years in Maldon I know that housing development is crucial in order to sustain growth and keep the housing market in check, we all love a increase in our assets but the key to long term returns and capital appreciation is for continual house production in order to keep house prices and rents at an affordable level.
Too few houses and the prices increase along with rental levels, too much of an upsurge in a short space of time is not sustainable and ultimately leads to a crash which as we all know can be a painful process to recover from.
Keeleys are currently seeing a real rise in rental levels due to the lack of properties coming onto the market, when I speak to landlords and tenants I often talk about the need for housing especially in a popular area like Maldon but it is difficult to know exactly what is planned for the area and when this might actually happen. It seems that although there is a Local Development Plan for the region, no major developments have actually been started and the process is ongoing, balancing the need for homes whilst keeping the charm and integrity of the area is paramount however, not producing homes is not the long term answer.
Keeleys have supplied links to both the North Heybridge Garden Suburb and the South Maldon Garden Suburb which provide further details on what is planned for the area, we feel information is paramount and hope that you find the following of interest along with the original plan from Maldon District Council.
Its the summer and its Final time at Wimbledon
Its a shame Andy Murry is now out of the tournament but what a fantastic display by Roger Federer, shows you should never write off a Champion!
Click here to read Its the summer and its Final time at Wimbledon.