Buy to-let investors have been hit hard in the Chancellor’s Autumn statement, but it is not just the landlords who will be effected by this unexpected tax hike.
“Frankly, people buying a home to let should not be squeezing out families who can’t afford a home to buy.” Chancellor George Osborne, Autumn Statement 2015
But what about the 24% of families in England who may not be in a position to buy their own home?
In the UK, 15% of households live in privately rented accommodation according to the latest census data. This is compared to 9% who live in Council owned properties or in social housing. The new measures announced by the Chancellor take away the incentive for private landlords to continue to provide rental accommodation.
In short, the impact that tax increases will have on buy to let landlords are:
- An additional 3% Stamp Duty Land Tax (SDLT) on buy to let properties;
- SDLT will be charged on all buy to let properties including those under £125,000 which are currently exempt from the tax;
- The landlords ability to deduct the cost of their mortgage interest from their rental income will be removed, so from 2017 mortgage interest relief on rental properties will be reduced to the basic rate of income tax; basic rate tax payers will pay 20% tax on rental income, and higher rate tax payers will be charged 40%;
The implications of these changes will mean that landlords with mortgaged properties; typically 75% loan to value, could end up making a loss, making their investment financially unviable. Once interest rates increase, landlords will be put even further out of pocket, and therefore it is likely that buy to let investors will be forced to increase rents sharply, or sell up and move out of the buy to let market altogether. The stamp duty hike will also act as an disincentive for new landlords entering the market.
So where does this leave the 15% of households in England currently living in private rented accommodation? Joining the back of the housing waiting list perhaps? In 2014 there were 1,368,312 families on the local authorities housing waiting list… and just 41,654 affordable housing units started or completed according to the Homes and Communities Agency (HCA) figures.
This announcement also coincides with the announcement in October to extend the right to buy scheme, which has already negatively impacted the supply of affordable homes. According to Shelter, one in three homes sold under right to buy scheme have not been replaced by councils since 2012.
The chancellor’s announcement to increase taxes for private landlords could lead to new housing developments stalling and rents increasing, making people who are not in a position to buy their own home most effected by decision.
While the residential rental sector, both private and social continue to be hit, an urgent solution is required to house those who cannot buy their own home. This poses the question; what can be done to increase the supply of affordable housing?
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