Just as this issue of Mortgage Strategy is published, a seismic change may be about to take place within the buy-to-let industry – one that could have catastrophic consequences.
As I write, we are approaching the second Budget of the year. Following the Conservatives’ surprising outright victory at the general election in May – marking the end of the coalition government – Chancellor George Osborne announced he was planning a second Budget, for 8 July, in which he would reveal a new economic strategy for the country. One of the issues that may be addressed in that Budget is landlord tax relief.
While no one has explicitly said that tax relief will be a focus of the Budget, there is growing speculation that it will be, with Osborne due to announce where his planned £12bn of tax cuts will come from.
At present, landlords can deduct mortgage interest from their products and, as such, pay less tax. This relief can produce a considerable saving and, if the Government has indeed earmarked this as a way to make cuts, it is understandable that it has come to that conclusion.
However, once again I fear this is an example of how politics and the mortgage industry should not mix. I have said frequently that the Government does not fully understand our industry and, particularly, buy-to-let.
This has been apparent on many occasions. An example is landlords checking the immigration status of tenants, which was suggested a couple of years ago by the coalition. Thankfully this suggestion remained just that but it clearly showed how politicians failed to understand how the market operated and how implausible it would be for such plans to be implemented.
If landlords lose their tax break, it will make buy-to-let as an investment proposition much less attractive. If letting a property, or a portfolio of properties – which takes hard work and commitment – were to become less profitable or even costly for landlords, why would they continue to do it?
Many good landlords would exit the market and the PRS sector would suffer. While some people may believe that this would make more properties available for first-time buyers, it would not. Investors buying properties to let are not the major barrier to first-time buyers that they are made out to be; mortgage funding is. All we would see is the PRS sector becoming contracted and those people who desperately needed quality rental accommodation losing out.
Let’s hope the speculation that landlord tax breaks will be cancelled proves to be incorrect.