Budget 2015: Changes to buy-to-let tax relief likely to have biggest impact on north London tenants

George Osborne announced plans in his Budget to cut tax relief for landlords

George Osborne announced plans in his Budget to cut tax relief for landlords - Credit: PA Archive/Press Association Images

The Chancellor’s ‘homeowners’ Budget’ may leave both landlords and tenants in north London out of pocket after George Osborne announced plans to cut tax relief for buy-to-let investors.

At the moment buy-to-let landlords can offset their mortgage interest payments against their income, whereas owner occupiers cannot do so.

In future this income tax relief will be restricted to the basic rate, currently 20 per cent in an attempt to subdue the buy-to-let boom.

Last week the Bank of England warned that the overheated buy-to-let market was one of the biggest threats to the UK’s financial stability because of the resulting inflated house prices and squeeze on supply for first time buyers.

Mr Osborne said that the new policy, which will be phased in gradually between 2017 and 2020, will “level the playing field” of property ownership and some believe that the move will take some of the heat out of the buy-to-let market.

Ben Felfeli of C.H. Peppiatt in Chalk Farm said: “I think people will think twice now about buy-to-let. People take into consideration now the fact that there’s tax relief but in two years’ time there won’t be.”

Mr Felfeli said that there was a chance that the policy could prove a boon to first time buyers if buy-to-let investors decide to sell their properties.

“If you’re buying a buy-to-let in Hampstead, you’re paying more stamp duty than last year. In addition, you’ll be getting a low rental yield and now you won’t be getting anything on your mortgage interest.

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“It’ll have a far greater effect for those in north London than it would in, say, Sheffield.

“I think you’ll have more properties coming on to the market for sale.”

While Paul Glass of Day Morris in Hampstead agrees that investors have been selling off their properties since before the election due to the threat of increased taxation, particularly for overseas investors, he disagrees that the impact of the buy-to-let changes will be greatest in north London.

He said: “I don’t think you’ll see people selling off their investments in north London as much as in other areas because you’ve got such high capital gains on property here.

“A lot of the time, north London investors aren’t doing it to get the maximum return on the rent, because they won’t get it here. They’re doing it to get the long term return on their investment.”

Mr Glass is also sceptical about suggestions that the changes may benefit first time buyers by increasing supply of properties at the lower end of the market and their ability to save is also likely to be further dented by the likelihood that any increased costs for landlords will inevitably be passed on to tenants.

He said: “I don’t think it’ll make things any easier for first time buyers, it’s still so hard in this area unless you’ve got family money or a property already.

“There’ll be fewer properties available to rent because people will either be selling or not investing as much, and when there’s more demand than supply, prices inevitably go up.”

Meanwhile people who rent out a room in their house to a lodger received a boost as Rent a Room relief, the amount they can earn tax free, will rise from £4,250 to £7,500.