Last week Chancellor George Osborne delivered his second budget this year, but importantly it was his first as part of a majority Conservative government, and seemingly four months can make quite a difference.  Whilst back in March there was celebration amongst first time buyers, July may have brought commiseration for landlords… or has it?

We’ve previously acknowledged the current buoyancy in the buy-to-let market, not least since pension reform earlier this year, but for property investors who have recently bolstered their portfolios, as well as those who’ve recently taken their first step in to the buy-to-let market, the Chancellor’s recent changes to tax relief may impact that buoyancy.

But what exactly are the changes all about?  Simply, at the moment landlords with buy-to-let mortgages are entitled to offset the interest on their monthly repayments against their income tax bills on the rent they receive from their tenants. The recent announcement, however, will see the government limit this relief to those who fall into the basic rate of income tax. Then, from 2017, those paying tax in higher bands will not be able to offset their buy-to-let mortgage interest costs against their income tax bill.

In terms of how this will impact the property market, we believe it has the potential to have an impact, but that it certainly won’t be disastrous.  Simply, for a higher rate tax paying landlord, £1000 of mortgage interest currently costs them £600.  When relief is restricted to 20%, they’ll pay £800.  So yes, their after-tax yield will be reduced but probably not by enough to discourage them from investing. 

Meanwhile, for fledging landlords who are yet to take the first step on the buy-to-let ladder, who instead chose to rent a room out in their main residence the Budget brought positive news. 

Here, the Chancellor announced an increase in the rent-a-room tax relief threshold for the first time since the Conservatives were last in power, meaning that from 2016 homeowners who rent out a room will not pay any tax on the first £7,500 of rent which is up from the previous level of £4,250.

So whilst on face value it may appear that the budget wasn’t all that positive for many landlords, we shouldn’t forget that we’re still in a low interest rate environment and house prices continue to rise.  This brings with it capital growth and so here at Andrews we’re continuing to advocate that buy-to-let does remain a very attractive option.

Don’t forget, headlines often sensationalise the Chancellor’s key points in his Budget address.  If you’re simply looking for some honest, expert advice log on to www.andrewsonline.co.uk or visit your local branch where we have a wealth of advice for both the seasoned and fledging landlord.