You may have noticed that George Osborne’s Budget earlier this month didn’t do a lot for landlords. And while that probably secretly pleased many of us in the tenant community who have seen our rents shoot up in recent years, the reality is that where landlords lose out then this cost is normally going to be passed on to tenants.
Perhaps one of the biggest surprises for landlords was that one of the two tax breaks that previously offered those in the buy-to-let sector relief on mortgages was removed. Whereas before the Budget it was possible for landlords to claim tax relief on a the interest on a buy-to-let mortgage pound for pound on the amount of tax paid out of their rental income, now the relief on mortgage payments has been phased down to 20%. This will impact landlords who are high earners in the 40% or 45% tax bands. In total the move is estimated to cost landlords in general a whopping £1.2bn by 2020.
Then there was the removal of the ‘wear and tear’ allowance, which was a tax allowance that was applied to 10% of rental income. It covered things like curtains, beds, carpets and furniture in a rental property. This move to abolish an allowance that effectively covered the cost of maintaining a rental property looks set to save the British treasury more than £700 million.
With respect to both of these measures, given the profitable nature of the lettings industry, there’s no real reason why the state should foot the bill when most landlords are earning more than enough to cover these costs. However, the reality is that, to most landlords, this will feel like a reduction in their income and many will look for a way to pass this on to tenants rather than take the hit and bear the costs themselves. According to Aidan Sutton, who is a partner at professional services network PWC, “This dramatically changes the scene for many thousands of would-be buy-to-let landlords. They’ll have to work out if they want to find an alternative investment to property or increase their rents. I suspect many will opt for the latter.”
So rents, which are already at unmanageable levels across the UK – particularly in London – look set to rise once more as tenants are, yet again, the only people to really lose out. Many commentators pointed out in the wake of the Budget that it failed to take renters into account, despite the fact that tenants make up the fastest growing tenure in the housing market. There has been some speculation as to just how much the removal of these measures is likely to cause rents to rise and figures are coming in at around 5-7% for London, which is a market in which renters are already being squeezed to breaking point. It makes you wonder how much more British renters can take and who is really fighting our corner.
What do you think about the state of the current rental market? Do you find it difficult to pay rent? Leave us some comments below or start a thread on our forums.