Osbourne lays out plans that could dampen buy-to-let market

PROPERTY owners and those looking to buy have had mixed reactions to today’s (8 July) budget announcement that the Conservative government will cut interest rates to match the basic rate of income tax

PROPERTY owners and those looking to buy have had mixed reactions to today’s (8 July) budget announcement that the Conservative government will cut interest rates to match the basic rate of income tax.

Paul Wood, a Partner of Lincolnshire estate agent, Pygott & Crone welcomed the changes for first-time buyers, and said those in the buy-to-let market would not be too adversely affected by the change.

Paul said:

The cut in rates would not make a fundamental change to the buy-to-let market in Lincolnshire; however in London where returns are lower it may make a difference.

Those who are or have already entered the buy-to-let market in Lincolnshire are by and large already making profitable rental returns and capital growth.

It may well dissuade others from entering into the market, which could be a boost for first-time buyers and people simply looking to move.

The reduction in rates will gradually come into effect from April 2017 over four years and hopes to redress the balance and create a “level playing field” for first-time buyers and those buying homes to live in.

Paul added:

It’s good to see that a four-year timetable has been put in place as this will reduce any risk of sudden market shocks and give those with buy-to-lets a chance to save more to reflect any increased payments, although one of the dangers with any changes like this is that in the end Landlords may choose to increase rents to offset the tax changes which will in the end cost tenants more money.

During his delivery of the budget, George Osborne said:

Buy-to-let landlords have a huge advantage in the market as they can offset their mortgage interest payments against their income, whereas homebuyers cannot. And the better off the landlord, the more tax relief they get.

The basic rate of income Tax currently stands at 20 per cent while current relief rates are more than double that, in some instances, at 45 per cent. Current figures estimate that relief on buy-to-lets cost the tax payer £6.3bn a year. It is hoped that the reduction in rates will save the treasury £228m in 2018/19, rising to £665m in 2020/21.

It’s not all cuts in this year’s budget as property owners looking to make a rental profit with those renting out their private rooms and homes on sites like Airbnb will benefit from an increased the limit from £4,000 to £7,000 on the “rent a room” scheme that gives landlords the chance to earn income tax-free letting out their homes.

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