Yesterday’s Budget left many in the property sector rueing what might have been with Philip Hammond deciding not to undo George Osborne’s unpopular tax reforms.
According to David Hannah, Principal Consultant at Cornerstone Tax, the Government’s plans to phase out mortgage interest tax relief in April will have a “detrimental impact” on households up and down and the country.
As of next month, landlords will start to lose the right to deduct mortgage interest costs when calculating how much income tax to pay unless they have purchased through a limited company. For information on how this will affect landlords, read our Buy to Win guide.
Responding to yesterday’s Budget, Hannah said: “With real estate representing 21% of the UK economy, it is a mystery as to why the government persists in hindering a crucial sector, by creating an unnecessary burden on tenants, landlords and homeowners.”
He said that the “double blow” of mortgage interest relief being phased out and the 3% stamp duty surcharge on additional properties, “doesn’t chime with the current socio-economic needs of the UK”.
He added: “The demand for rental accommodation is set to rise by one million households in the next five years – a combination of restricted access to mortgage finance, unaffordability created through eyewatering SDLT rates, and a shift in labour market trends towards a more mobile workforce.
“Yet the government continues to breakdown the very sector that has absorbed change and provided homes for those who simply either cannot afford or do not wish to commit to homeownership.
“With the sector currently in its fourth consecutive quarter of decline, paired with a fall in homeownership rates, we are fast approaching a new type of housing crisis.”
Hannah urged the government to stop “their obsession with homeownership” and “think carefully” about what the country really needs – “an accessible, flexible and affordable housing supply”.
Of the decision not to U-turn on stamp duty, Rosie McCormick Paice, Real Estate Partner at law firm Pemberton Greenish, said it was “disappointing”.
She said: “The surcharge has slowed down the housing market with revenue from [stamp duty] reducing – revenue that could have been invested in housing schemes that would help ease the housing crisis.”
Buying through a limited company will protect landlords from the mortgage interest relief changes as they do not apply to companies. Since the changes were announced by former Chancellor George Osbourne in the 2015 Budget, mortgage providers have launched ‘limited company’ buy-to-let products with competitive interest rates to attract new business in a sluggish market – so now is a good time to shop around.