Member Article

The Budget and property

A leading property expert has responded to Chancellor George Osborne’s Summer Budget – which includes plans to cut housing benefit to young people and to reduce tax relief for landlords.

Announcements relating to housing in today’s Budget Statement include:

• Removing the automatic entitlement to housing benefit for those aged 18 to 21, with exceptions for the vulnerable.

• Buy-to-let mortgages will from April 2017 only be able to offset interest against costs at the basic rate of tax, not the higher rate.

• Social housing tenants earning over £30,000 or £40,000 in London will be forced to pay market rents.

• Rents in social housing will be cut by 1%

• An increase in the inheritance tax threshold to £1m for married couples.

The change most likely to affect landlords is the reduction in the amount of tax relief landlords can claim to the basic rate of tax, currently 20%

Currently property investors can claim tax relief on their monthly interest repayments at the top level of tax they pay, meaning some are benefiting from relief of up to 45%. Property expert Ajay Jagota of North East sales and lettings business KIS responded to the Budget.

He said:

“Today’s budget represents a mindset shift in the way we think about housing, which reflects the reality that the number of people living in the private rental sector has doubled in the last ten years.

“Cutting housing welfare for people on higher wages is a common-sense start to that. Social housing is not designed for people earning more than £30,000 or £40,000, so it’s only fair that people earning that much pay the going market rent for their homes rather than having their rents reduced at public cost.

“I know some landlords are anxious that the removal of Housing Benefit from unemployed under-21-year-olds might cost them tenants, but this will only affect something like 0.3% of tenancies.

“I’d imagine most people will believe that young people shouldn’t be living on their own unless they’re paying their own way and should otherwise be in education – although it’s crucial that a safety net is maintained for vulnerable young people who can’t live at home.

“I’m less convinced of the good sense of reducing tax relief for landlords – it could really hit the profit margins of smaller time investors and accidental landlords. I know not many people will weep for landlords’ profits, but there could be unexpected and undesirable side-effects like landlords pushing up rents to make ends meet or being forced to invest less in their properties.

“George Osborne says he wants to level the playing field between privately owned and socially owned homes, and most of the measures he has announced are sensibly addressing the natural evolution of housing in the United Kingdom.

“On this final point however, he does seem to be neglecting the fact that more and more people are choosing to rent rather than buy, with home ownership flat-lining and the number of people renting rising by 90% in just 10 years.”

This was posted in Bdaily's Members' News section by Ajay Jagota .