Measures announced in the Summer Budget to scrap tax relief and tighter regulation in the private rented sector could push up rents and harm tenants more than landlords, according to a report by the Intermediary Mortgage Lenders Association.
The IMLA has warned that the loss of higher tax relief and tighter regulation on buy-to-let could constrain the supply of rented property and make life more difficult for tenants.
The body, which represents banks and building societies that sell their products through brokers, said changes in July’s budget removing higher tax relief could push some landlords into losses after tax and raise the effective tax rate on their buy-to-let above 100%.
This could skew the market in favour of owner-occupied house hunters by reducing the price that landlords are willing to pay for property.
The organisation said this could constrain the supply of available rental properties at a time when population growth and low housing supply are driving an increase in demand.
Chancellor George Osborne announced in the Summer Budget that the government would be cracking down on mortgage tax relief, which is estimated to cost the Treasury £6.3 million a year.
The move will see the amount landlords can claim as relief set at the basic rate of tax, which is 20%.
Currently, landlords can claim tax relief on monthly interest repayments at the top level of tax they pay, meaning the wealthiest can claim as much as 45%.
The IMLA report also highlighted the “robust recovery” of the buy-to-let sector, although lending volumes remain 40% below their 2007 level.
Peter Williams, executive director for IMLA, said: “Comparing market segments, first time buyer volumes have actually held up best over the period from 2007-2014, while buy-to-let has been clawing its way back from a deep recession low as demand for private rental properties has grown.
“Until there is a broader policy push to tackle the chronic lack of supply, homeowners and renters in both private and social sectors will all remain vulnerable to the effects of the current lack of fully joined-up policy making.”
