Landords threaten to raise rents when tax increase kick in

Landlords have claimed they will be forced to raise rents as a result of the government’s string of tax changes and crackdowns on the buy to let sector.

A new survey also revealed private sector landlords will not be able to invest as much in improving their properties as a result of the extra charges they now face.

In a bid to tighten the tax rules around rental incomes, the government is going to cap the tax relief landlords can claim on their mortgage interest payments for those earning above the higher rate income tax threshold – currently £43,000 a year. The changes will be phased in over a four-year period starting next April.

The government estimates one only in five landlords will affected as a result of the change, but the Residential Landlords’ Association (RLA) found 56 per cent of their members plan to raise rents over the next 12 months in response to the new tax tweaks.

Prospective landlords, or those looking to take on new properties, have also been hit as a result of the three per cent stamp duty surcharge introduced for second home purchases. That came into effect at the end of March and resulted in a flurry of activity in the housing market earlier in the year.

The promise to rise rents will be particularly hard-felt in the capital, where just 40 per cent of people own their own home and homeownership rates are plummeting among younger generations in the face of steep price rises.

Across the UK the number of owner-occupied homes has barely shifted from 17.4m to 17.7m between 2000 and 2014. Meanwhile, the number of dwellings in the private rental sector has more than doubled to 5.3m and shows no sign of slowing down.

Nearly six in ten landlords also said they would not be able to invest as much into the properties they rented out as a result of high tax bills.

This week the Bank of England announced the latest details in its own crackdown on landlords, outlining the tough new affordability tests they must pass in order to qualify for a buy to let mortgage. Threadneedle Street has been worried for some time about the financial stability risks posed by lax lending standards for people buying homes to rent out.

The government, meanwhile, is shifting its focus from measures to support demand in the property market to addressing the chronic undersupply, which should, in theory, help to stem the problem of rising rents and house prices for generations of young people.

Sajid Javid, the communities secretary, today reiterated his commitment to build one million homes by the end of the decade, and chancellor Philip Hammond also announced the closure of one of George Osborne’s Help to Buy schemes which offered first time buyers a guarantee on their mortgage to help them get onto the housing ladder with just a five per cent deposit.​

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Written by: Houseladder