The tax changes, announced as part of the Summer Budget, mean the tax relief landlords can claim on their monthly mortgage interest repayments will in future be reduced to 20%, regardless of their personal top rate of tax. At present they can claim up to 45%. The changes will be phased in from April 2017.
Adrian Gill, director of Your Move and Reeds Rains, commented: “Landlords could be forgiven for feeling a little deflated at the moment and its worrying to see this may motivate many to reconsider their investment. The government’s tax changes appear to be making investing in buy to let less attractive because of the seemingly smaller profits margins on offer in the future.”
He warned that a tenth of landlords leaving the industry would ‘seriously’ shrink the number of properties available, translating into higher rents.
Demand for rental properties has gone up with 52% of investors seeing an increase, compared to 41% this time last year.
“Demand for rented accommodation will continue to climb in the future, as the population increases. The UK may be becoming more like its European counterparts with lower levels of homeownership and more people living in rental properties into old age. This should be great news for landlords, as the investment opportunities in the sector will continue to improve, despite the regulatory and tax changes,” Gill said.
As a result of tighter regulation, two fifths (44%) of UK landlords feel investing in buy-to-let property is more complicated than it was six months ago, and 11% feel that they do not fully understand the current legislation.
The requirement for landlords to check tenants’ immigration status prior to letting their properties has also had an impact, with one fifth of respondents being ‘daunted’ by the task. They now feel unequipped to let out their houses without help from letting agents.
Adrian Gill stressed the need for the government to ‘cut the red tape’ involved in providing homes for renters if they ‘hope to maintain a healthy supply of rental properties’.
He added: “With the Bank of England keeping a wary eye on the buy-to-let market, further regulatory interference may only make landlords’ and tenants’ lives harder. We need landlords to stay in the market and invest further in the sector, in order to match future demand.”