Tax relief cut ‘won’t harm sector’

The Chancellor’s move to curb tax relief on buy-to-let mortgages is unlikely to dampen activity in the sector, Nationwide Building Society’s senior economist has forecast.

George Osborne’s decision to begin tapering tax relief for buy-to-let borrowers to the basic rate, starting in April 2017, will not deter landlords from investing in retail properties, according to Nationwide’s Stefano Silvestrin.

Speaking at the Financial Services Expo in London last week, Silvestrin said the decision to cut the tax relief that higher-rate taxpayers could claim to a basic-rate level over the next four years might, however, have a “dampening” impact.

“Activity [in the buy-to-let market] will not be as high as it would have been if this measure had not been introduced,” he says. “But we don’t think it will have a major impact.”

He says it is likely that the buy-to-let market will continue along its current path with “modest growth” because the “risk perception” around buy-to-let has dropped for lenders, which is why there is more activity and competition.

Further regulation of the sector is, however, looking likely, he warns. Silvestrin believes the financial regulators could act further in the buy-to-let space if they thought lending levels were getting too high and the sector was securing too great a proportion of total lending.

“If [the regulators] do anything, it will be around increasing the rental cover ratio required and increasing stress-test levels on buy-to-let loans,” he says.

“[Buy-to-let] is likely to become more regulated.”