Changes to the way landlords are taxed on their buy-to-let properties are escalating rapidly over the next four years, and it will have a huge impact on both landlords and tenants.

As of next year, tax changes will come into force that will reduce the tax relief on mortgage interest for private landlords. The effect will be both to double the annual tax bill for higher-rate taxpayers and to push more investment homeowners out of the basic rate bracket.

These changes to tax relief will increase gradually between 2017 and 2020, eroding the profits that people with buy-to-let mortgages can make. Note that landlords who do not have mortgages – i.e. those that own their additional properties outright – will not be affected by this.

One of the biggest changes is that the cost of renting a property is going to go up. The biggest mortgage lenders have already changed their lending ‘rules’ ahead of the changes: rent must now be charged at 145% of mortgage costs in order to cover the loss of tax relief.

This means that rent is going to increase – and it’s not landlords’ fault.

Since the changes to the mortgage market in 2014, it has become harder than ever to secure a mortgage, so many people depend on renting.

These measures go too far and will not meet the need for low-cost rental options for the hundreds of thousands of people who actually choose to, or prefer to, rent.

At 365 Property Buyer, we foresee a number of other effects that the changes will have:

  • A lot of rental properties will be sold off by landlords looking to reduce their portfolio
  • People renting will be forced to spend a greater chunk of their income on their rent
  • Landlords who are not affected will increase their rental prices in line with the rest of their market
  • Property values could decrease, especially at the lower end of the market, as landlords offload their properties

While there might not initially be much sympathy for anyone lucky enough to own more than one property, but it will have huge ramifications for everyone – both landlords and tenants – and everyone needs to be prepared.

At 365 Property Buyer, we specialise in offering quick, discreet property sales to people who wish to sell quickly, or who do not want to incur the costs involved with a protracted sale.

Head to our homepage to get an instant online valuation or speak to one of our specialists today.