How are landlords reacting to the Budget tax relief changes?

More than of half of landlords are likely to increase their rents after the Chancellor cut mortgage interest tax relief in his summer Budget, research suggests.

The findings, produced exclusively by Rentify, found a strong reaction among landlords to George Osborne’s decision to cut the relief to 20 per cent. Rentify surveyed almost 500 landlords that use the website to let and manage their properties.

Landlords could see their earnings hit by thousands of pounds as a result of the reduction to the basic rate of tax.

Increasing rents

Many investors said they will react by increasing rents, while similar numbers suggested they will now not expand their property portfolios.

The Chancellor said the decision will help to level the playing field between property investors and first-time buyers who are often competing for the same properties. In this situation, first-time buyers can be in a weaker buying position as they struggle to find a mortgage due to the large deposits required by lenders.

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The Rentify survey also suggested 21 per cent of landlords are “extremely likely” to increase their tenants’ rent, while 35 per cent said they are “somewhat likely” to do so. It means a total of 56 per cent of landlords are likely to increase their rents going forward.

The Chancellor’s changes will be phased in over a four-year period. However, landlords are already considering how they are going to adapt to the forthcoming dent in their profits, the survey found.

At the same time, 31 per cent said they are “extremely likely” not to expand their portfolio in the future, while 26 per cent said they are “somewhat likely”. It means more than half are likely not to be buying any additional properties in the future.

It is unwelcome news for the buy-to-let industry and one that has led some campaigners to call on the Chancellor to limit the damage. Some have even suggested that Osborne should only introduce the tax relief reduction on landlords who have more than one property.

Evicting tenants

The survey suggested some positive news with only 7 per cent of landlords saying they are “extremely likely” to sell their properties as a result of the Chancellor’s announcement. A further 16 per cent are “somewhat likely”. By far the majority of landlords – at 43 per cent – said they would not be selling any of their properties.

There is also a glimmer of hope for tenants despite the possibility of rent increases as the survey found that 61 per cent of landlords are not looking to evict their tenants, with just 5 per cent saying they will.

The Bank of England says it will monitor buy-to-let in the coming months amid fears that the booming sector could unhinge the health of the wider economy. It will no doubt be interested in Rentify’s findings, which provide an exclusive insight into how landlords are reacting to the changes.

The Chancellor’s decision may have a bigger impact that initial predicted, with large numbers of landlords expecting to increasing their rents. For some, this may mean losing their tenants who cannot afford the increases. As such, the overall health of the sector will be hit, with both landlords and their tenants suffering financially.

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