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'New buy-to-let tax will make it harder, not easier, for first-time buyers to afford a home'


04-11-2017

 

For sale sign - 'investment opportunity' 
Only a minority of sales to landlords involve bids from aspiring owner-occupiers, according to the London School of Economics 
 

The changes to the taxation of the private rented sector are based on evidence that is threadbare at best and nonexistent at worst. This is no way to make policy and could have a devastating effect on tenants and housing supply.

This week the Government began the process of restricting mortgage interest relief to the basic rate of income tax. Landlords will also be taxed on their turnover, rather than their profit, unlike any other business.

Ministers have used different arguments to support these measures. One has been that they are necessary to prevent a buy-to-let bubble threatening the economy. Yet landlords are not borrowing recklessly.

The number of buy-to-let mortgages is falling, as are the total amount being borrowed and the number of mortgages that are in arrears. Various surveys have found that landlords have plenty of equity in their properties.

Another line of argument is that landlords have enjoyed a tax advantage. But the respected Institute for Fiscal Studies has said that the tax system “is not, and was not, even before the recent changes, more generous to people buying to let”. Buy-to-let landlords, unlike home owners, pay both income tax on the returns from their properties and capital gains tax when they sell.

The Treasury also argues that the new tax will prevent landlords from grabbing homes that could go to first-time buyers. It has been unable to produce any evidence to support this position. The London School of Economics said last year that “only a minority of sales to landlords involved bids from both types of buyer”.

The Government has estimated the number of landlords who will be affected by the new tax at one in five, but this is meaningless without knowing how many properties will be affected, about which it has no idea. It asserts that the tax rises will have only a limited impact on rent levels.

This is despite evidence to the contrary from my organisation, the Council of Mortgage Lenders and others, including a stark warning from a former member of the Bank of England’s monetary policy committee, David Miles, that rents would need to rise by between 20pc and 30pc for landlords to cope with the tax rises.

The irony is that this runs counter to the central tenet of the Government’s housing policy, which is to enable more people to be able to afford their own home. Rent rises will make it an awful lot harder for people to save for a deposit.

The Government’s last argument is that instead of hundreds of thousands of smaller landlords providing the extra homes that are needed for rent, the space will be filled by a few corporate investors. But a House of Lords Committee said last year that “efforts to bring large institutional investors into the sector have so far achieved little”.

Large-scale developers are also interested only in the cities and larger towns, leaving smaller towns and the countryside starved of affordable rented accommodation.

The housing minister rightly stated last year that “we need to build more homes of every type”. This Government can demonstrate a serious intention to address the housing crisis only by giving encouragement to the small landlords who make up the vast majority of

the sector and can develop new homes to rent more quickly than the big institutions.

This means using the Government’s windfall from its stamp duty surcharge to lessen the burden of the tax rises. It should, at the very least, apply the mortgage interest changes only to new borrowing so that the goalposts aren’t moved for those who have already taken out loans.

It also means not applying the stamp duty surcharge where landlords invest in property that adds to the net supply of housing. It is simply crazy to levy an extra tax on new housing when more is so badly needed.

The Government should also report to Parliament on the impact of the tax changes to ensure that everyone can understand the implications of these unnecessary measures.

The Chancellor should reverse the approach of his predecessor and recognise that landlords are part of the solution and not part of the problem.

He should use the time between now and the Budget in the autumn to review the taxation of landlords and come forward with a tax structure that is based on sound evidence and that will enable smaller landlords to keep rents down and supply hundreds of thousands of extra homes to rent.

Alan Ward is chairman of the Residential Landlords Association

www.telegraph.co.uk/

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