If you are a landlord that has arranged a buy to let mortgage towards the purchase of an investment property that you are letting out then you should be aware that it was announced in the recent Budget by George Osborne, Chancellor of the Exchequer, that the tax relief currently available on mortgage interest is being reduced for those paying more than the basic rate of tax.
At the present time, tax relief is available at the highest rate that you pay so some landlords could be obtaining up to 45% in tax relief on mortgage interest. Starting in April 2017, the tax relief is to be reduced over a four-year period to 20%.
This would mean that someone currently paying 45% in income tax and paying £1,000 per annum in interest is presently getting relief of £450 per annum. By April 2021 this relief would only be worth £200 per annum.
This is a significant reduction and may have implications for the property rentals market. For instance, it could lead to landlords increasing the rent that they charge their tenants to compensate for the shortfall in tax relief. It could also result in fewer people wishing to become landlords or some current landlords deciding that they no longer wish to remain in the business. This could lead to a reduction in the number of rental properties being available for potential tenants.
It could also have a negative impact on the building trade that has seen a recovery of late as fewer new properties may need constructing. Of course, if there are fewer rental properties available to rent out then this could also lead to the rent being charged on those investment properties rising.
Whilst there are no doubt a significant number of landlords that have purchased properties to rent out who will not be affected by the above because they have paid cash, there are a considerable number who do arrange buy to let mortgages. In fact, in excess of 15% of mortgage applications are to assist in the purchase of buy to let properties.