Tenants face potential rent increases of twenty to thirty per cent as a result of tax rises hitting the private rented sector says a former independent member of the Bank of England’s Monetary Policy Committee.
Since April 2016 a three per cent surcharge has been added on the purchase of homes to rent out and from April this year the Government will begin restricting mortgage interest relief for landlords to the basic rate of income tax.
In a frank assessment, David Miles, Professor of Financial Economics at Imperial College London calls for the planned changes to be “abandoned”.
Professor Miles warns that generally “rents would need to rise between twenty percent and thirty per cent” to offset the impact of the Government’s tax rises.
Addressing the argument made by the previous Chancellor that the tax changes are about making it easier for first time buyers to enter the market, Professor Miles writes that “aspiring first-time
buyers are hardly helped by squeezing the supply of rental property and driving rents up.”
He concludes by warning that: “it is strange to believe that having households channel more of their savings into US government bonds or into equity issued by German companies is to be preferred to their investing in providing rented accommodation in the UK.”
The analysis backs up research by the Residential Landlords Association (RLA) which has found that a majority of landlords will be negatively impacted by the tax changes.
The RLA is calling on the Government to use the unexpected extra revenue from its stamp duty levy to halt the implementation of the mortgage interest changes, or at least apply it only to new borrowing for new housing.
David Smith, Policy Director for the Residential Landlords Association commented:
“Professor Miles’ assessment proves that current tax policy will be counterproductive in making rents affordable and increasing supply to meet the growing demand.
“It is time for the Government to think again.”
For more information:
- Professor David Miles’ essay, “Why are the recent tax changes on rented properties in the UK bad?” can be accessed at https://workspace.imperial.ac.uk/business-school/Public/people/dmiles/Tax-Changes-November-2016.pdf
- The RLA’s analysis can be accessed at https://news.rla.org.uk/professor-slams-landlord-tax-changes/
- The RLA’s assessment of the Government’s stamp duty windfall can be accessed at https://news.rla.org.uk/rethink-urge-after-stamp/