The 2015 Summer Budget impact on the mortgage market

So the Chancellor George Osbourne yesterday delivered his summer budget and we all knew that cuts were coming, he has warned about that in his previous budgets. Those tax cuts have affected property and in particular Buy to Let landlords. But it is not all bad news…..

Rent a room relief is up!

If you rent a room out then you will be able to claim £7,500 per year in tax relief towards that income. The current rate of £4,250 per annum has been frozen since 1997 and so is a welcome relief to the many homeowners that do rent a room out to students and the like to bring in an extra source of income.

IHT Free for property worth £1 Million or less

This one is a bit more complicated and its effects will take a lot longer to be realised but, In short, if you own a property jointly with your spouse worth £1m or less then you can leave your estate to children or grandchildren tax free from by the year 2021. Presently there is no IHT on £325,000 and you can double up with your spouse to utilise £650,000 with no IHT charged. The budget changes will increase this value by £100,000 in the 2017/18 tax year increasing by £25,000 up to tax year 2020/2021 when it will reach £175,000 extra per person and therefore total £500,000 per person or £1m per couple. Therefore an estate worth £1m or less in 2021 will be IHT free if passed from a couple to their direct descendants. This will hopefully see more property left to younger generations and free up some of the larger properties, apparently.

Big changes for property portfolio landlords but good news for First Time Buyers!

Buy to let property landlords will see a hike in tax due to changes proposed by the Chancellor yesterday. From April 2017 and over a 4 year period landlords will no longer be able to claim tax relief above their basic rate of tax which is currently 20%. In simple terms for a higher rate tax payer, £1,000 of mortgage interest only costs £550 after tax relief but after the year 2020 will cost £800. This change is bound to effect the landlord that is highly geared and holding property that doesn’t have a high yield as the profits will be squeezed and they may now decide to sell. Furthermore, and what will come as another blow for buy to let landlords, the wear and tear allowance of 10% per year will be scrapped from April 2016. Buy to let lending has accounted for 15% of all business so far this year, it is big business. ….BUT this could all be good news for First time buyers. With landlords being squeezed financially to make ‘a more level playing field’ between residential and investment property owners first time buyers could be the real winners as more ‘first time buyer’ properties may come on to the market as a result. If it turns out less landlords are inclined to invest in property then more property will be left for first time buyers. With less landlords buying property the prices in localities will be under less pressure and will remain more affordable for First Time Buyers. What does actually happen will be interesting to see but what is for sure is that it will be a more level playing field between the ongoing battle of buy to let landlord and first time buyer who typically go for the same entry level houses and flats. Some industry commentators have suggested that landlords will have to put rents up but I am not so sure that will stick. It’s difficult to say what will happen because ultimately holding property has 2 benefits, firstly you get a source of income and secondly you achieve capital growth, OK it is going to be less tax efficient in the future but property is still for me the best place to put your money in the UK.

Ltd company

This change affects individuals holding property and not Ltd companies. With corporation tax falling to 18% in 2020 buying property in a Ltd company will be more attractive, however, rates of interest offered by mortgage lenders for Ltd companies are a few % higher than those offered to individuals.

For expert First time buyer or Buy to Let mortgage advice speak to Fox Davidson. We provide whole of market mortgage advice to clients across the globe wishing to invest in UK property. Tel: 01179 789 950. fox-davidson.local