News that the Chancellor has cut the tax relief which private landlords receive on their mortgage interest payments from 40% to 20% by April 2020, was met with much surprise.
While it should create a more level playing field between buyers and investors – particularly in areas like London where first-time buyers find it very difficult to take their first step on the property ladder – it could perhaps lead to an escalation in rental values. In addition, if landlords decide to pass on the extra costs they are incurring to tenants, it could make it even harder or take even longer to save up a deposit.
It is however worth bearing in mind that investors purchase property for a number of reasons and as prices continue to rise both inside the Capital and outside, many are realising a return on investment through capital growth rather than relying on a yield altogether. Many landlords therefore might not be too concerned about the changes and will instead take a long term view.
The good news for the lettings market following the budget, was that landlords who rent a room out in their house to lodgers will now be able to receive up to £7,500 per year before being liable to pay tax, compared to £4,250 previously.
As with every budget there are winners and losers, and we’ll have to wait a few months before we start to see the full effect the announcement has on the lettings market.