Tax move offers hope to first-time buyers

First-time buyers could be given a boost by reforms to a key tax relief for buy-to-let landlords.

Delivering his summer Budget on 8 July, Chancellor George Osborne said: “Buy-to-let landlords have a huge advantage in the market as they can offset their mortgage interest payments against their income, whereas homebuyers cannot.

“We will create a more level playing field between those buying a home to let, and those who are buying a home to live in.

The tax relief offers extra benefits to landlords with larger incomes, as for every £1 of mortgage interest, they pay 40p or 45p less tax.

Mr Osborne said that from April 2017, mortgage interest relief on residential property would be restricted to the basic 20 per cent rate of income tax. It will be phased in over a four-year period.

The move led to a range of predictions from commentators, with some suggesting that it would drive up rents while the National Institute for Economic and Social Research forecast that it would make buy-to-lets – which currently make up more than 15 per cent of all new mortgage lending – less attractive than other forms of investing, leading to lower house prices and existing landlords becoming less likely to “hoard” properties.

Duncan Stott, director of the PricedOut campaign, which represents would-be first-time buyers, said it was good news for people trying to get a foot on the housing ladder.

He said: “For too long, buy-to-let landlords have been using an unfair tax break to out-compete first-time buyers and drive house prices further out of reach.

“We hope this excellent move to bring fairness to mortgage taxation will be just the beginning of the reforms needed to get the housing market into a fit shape for first-time buyers.”

Nicola Tubbs, an Associate Executive with Palmers, said: “While the change to the tax relief is some way off, it could make buy-to-let investments less desirable. With first-time buyers often chasing the same properties as landlords, they may find more homes become available if demand from buy-to-let purchasers declines.

“Whatever the circumstances of your purchase – first-time buyer, downsizing, moving to a larger home or adding to a rental property portfolio – having access to expert residential property legal advice helps to help resolve difficulties and avoid delays.

“At Palmers, we offer a fast and cost-efficient conveyancing service, provided by an experienced team that understands the importance of providing proactive support and communication from start to finish. For more information, please contact our Property team.”