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Landlords ‘heading for the exit’ as mortgage interest relief restrictions begin

Tenants are set to face anything from a lack of access to rental properties to increasing rents from today as mortgage interest relief gets rolled back from today, surveys suggest.

The EYE inbox has been full of commentary and data almost since the end of mortgage interest relief was announced by then Chancellor George Osborne in 2015, with some still hoping for the changes to be scrapped as recently as last month’s Budget.

The changes become a reality with the new tax year starting today.

Campaigners at the Axe the Tenant Tax campaign have been running an awareness week in recent days highlighting the unfairness of the changes, and are still holding out hope for a U-turn, citing Chancellor Philip Hammond’s recent reversal of his national insurance policy as evidence of the ability for the Government to backtrack.

They highlight research from the RICS that predicts rents are set to rise by 25% over the next five years as landlords decrease their portfolios, leaving tenants to compete over a smaller pool of properties.

Steve Bolton, founder of buy-to-let investment firm Platinum Property Partners and a co-leader of the campaign, said: “In implementing these changes, the Government is breaking an age-old taxation practice and is forcing landlords to pay tax on part of their costs – despite no other type of business having to follow such rules.

“The tax changes are based on a fundamental flaw – that driving landlords out of the housing market will improve first-time buyer levels. This simply isn’t true. Landlords and first-time buyers do not buy the same types of properties, and shrinking rental supply won’t suddenly help first-time buyers to save for a deposit.

“In fact, it will do the very opposite as rents become more expensive. The sooner the Government realises this and reverses the changes, the better.”

According to AXA, a fifth of landlords are planning to sell their rental properties as a result of the changes.

A poll of 382 private residential landlords by the insurer found that 21% plan to sell all their rental properties, 10% will reduce their portfolio, and 7% will switch to commercial property ownership, which they perceive as a safer option.

A further 8% said they will transfer ownership of their rental property to their spouse or other family member who is in a lower tax bracket as a way of avoiding extra tax.

The mortgage interest relief restrictions are the latest in a series of clampdowns on the buy-to-let sector. Landlords are already reeling from the extra Stamp Duty charges and the scrapping of the wear and tear allowance.

It is perhaps no surprise then that two thirds of landlords surveyed said they feel stigmatised for running a rental business.

The AXA poll found that the average UK landlord makes £343 rental profit each month, with levels varying from £297 in the west Midlands to £713 in London.

Gordon Rutherford, head of marketing for AXA Insurance, said: “Landlords have been subject to one piece of new legislation after another in recent years, much of it very complex indeed.

“We see a real confusion as to what the new tax changes will mean, with Government and landlords giving very different estimates of the impact.

“We need to remember that few landlords are professional property tycoons – two thirds in the UK are ‘accidental’ landlords.

“They tend to own just one rental property that they’ve inherited or are finding hard to sell, and they make a modest income once time and expenses are out.

“They do feel increasingly apprehensive, as we can see from the numbers thinking of withdrawing their properties from the rental market in the coming years.”

Rather than leave, other landlords are planning to raise rents to mitigate the changes.

A poll of members by the Residential Landlords Association (RLA) found that two-thirds feel they will need to increase rents to cope with the new tax burden. Just over half (58%) also said they plan to cut back on investment in property.

Alan Ward, chairman of the RLA, said: “Today’s tax increases contradict everything the Government has said about needing a larger rented sector to give tenants more choice and more affordable housing.

“It is tenants who will be hit hardest by these punitive tax increases. Aside from likely paying more in rent, in many places they will face a growing shortage of affordable places to rent.

“We call on ministers to undertake a major review of the impact of this policy, and if all the predictions about its impact are right, to abolish the changes in the Autumn Budget.”

Others have warned of a lack of awareness of the new tax rules, which seems pretty unbelievable given the number of press releases we have received on a daily basis.

John Eastgate, sales and marketing director of OneSavings Bank, said: “Since the changes were announced in the 2015 Budget, we’ve already seen many landlords take action to mitigate the impact of the tax changes by becoming limited companies, or transferring ownership of properties to a spouse or partner in a lower tax band.

“Worryingly, one in six landlords do not understand the financial implications of the changes and will be in for a nasty shock when they find that they can no longer deduct all finance costs from rental income at the end of the 2017/18 tax year.”

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