Agents have expressed their disappointment at the decision by the government to restrict mortgage interest relief for Buy To let investors to the basic rate income tax. 

This means that for high income tax rate landlords, interest payments of £100 only cost £55 after tax relief they will cost £80 when the phased measure is fully introduced in 2020. 

This is likely to slow the mortgaged Buy To Let sector – hitting both the sale of suitable properties and their letting out – according to Lucian Cook, head of research at Savills. 

“Together with caps on housing benefits and the prospects of medium term interest rate rises, this will also put a squeeze on highly leveraged buy to let investors in lower value markets. There are currently just under 5.2 million private rented dwellings and just over 1.6 million buy to let mortgages” says Cook.

“The idea that tax benefits have been a big driver for growth in the private rental sector is flawed. Unlike homeowners, private landlords are still subject both to capital gains tax and tax on rental income, subject to allowable deductions for most costs. It also overlooks the fact that two in three properties entering the private rental sector since 2007 have done so without the support of buy-to-let mortgages” says Peter Williams, executive director of the Intermediary Mortgage Lenders Association. 

“We were disappointed …. this will discourage new landlords from entering the sector and will result in a lack of stock. This will inevitably lead to higher rents as at the end of the day landlords are business people and will need to compensate for this” warns Glynis Frew of Hunters Property Group.

The formal lettings sector may also be wary of the news announced by Chancellor George Osborne that after 18 years, the Rent A Room tax free income threshold is being raised.

It was £4,250 but will now be £7,500 per year – undoubtedly fuelling the growth in short, informal lets in an era of Airbnb and many other online services.

“The change … has potentially huge implications for the scarce supply of affordable rented accommodation. There are an estimated 19m empty bedrooms in owner-occupied properties in England alone. Freeing up just five per cent of those rooms would accommodate almost a million people” says Matt Hutchinson, director of Spareroom.co.uk. 

The other significant change affecting the high-end residential market in prime central London was the announcement that permanent non-dom tax status will be abolished from April 2017. This does not eliminate the tax status, but individuals who have lived in the UK for 15 of the past 20 years will lose the right to claim it, bringing in £1.5 billion in extra tax per year if the government forecasts are correct. 

Liam Bailey, global head of research at Knight Frank, says: “These reforms follow a series of changes in recent years that make it increasingly difficult to argue prime residential property is under-taxed. The relatively subdued nature of the prime London market since December’s stamp duty changes highlights the risk of higher taxation on market demand and also government revenues.”

Additional planning measures are to be announced by the government tomorrow – and will be covered on Estate Agent Today and Letting Agent Today as appropriate.