(Newswire.net — July 30, 2015) — George Osborne, the UK’s Chancellor, recently unveiled the first all-Conservative Budget for two decades. Setting out a financial plan for Britain for the next five years, the Budget has seen Mr Osborne making changes that will shake up the property industry. Cracking down on unfairness in property taxation, one of his big changes has been cutting mortgage interest relief on buy-to-let homes.
It was always clear that the announcements of the 2015 Emergency Budget would contain wide-reaching implications for businesses and individuals alike.
While it’s a number of property agents who feel the interest relief change is unfair, it could be tenants, first-time buyers and ultimately, the young people of Britain, that really suffer.
However, with the enhanced Rent-a-Room scheme, a government scheme that rewards individuals letting out furnished accommodation with tax breaks, could London become a city of lodgers?
What the mortgage interest relief cuts may entail
The cuts have been introduced to level the playing fields between potential landlords and those who are buying property to live in. At the moment, landlords are able to claim tax relief worth more than 40% of the interest payments on their buy-to-let mortgages.
Property and fast house sale experts We Buy Any Home say that when it comes to buying property, mortgage interest relief has helped landlords far more than first-time buyers. This could certainly be the reason why buy-to-let properties now account for over 15% of new mortgages.
It is possible that the cuts will lead to private investors leaving the property market. As a result, this could create an influx of buy-to-let homes being released into the market and thereby help control property prices.
However, fewer buy-to-let homes mean fewer options for renters – and a restricted supply of rental homes will almost certainly push up rent.
How young adults will factor in
The Conservative’s new Budget contains fresh housing benefit cuts and exempts people under the age of 25 from benefitting from the new higher minimum wage. This will be far from helpful for young people on lower incomes who hope to become homeowners, especially seeing as a major charity has warned it will increase the homelessness of young people.
In the scenario where buy-to-let investors simply raise their rent to recoup their losses, first-time buyers would still be up against landlords when bidding on property, and tenants; usually young adults without the finances to purchase property, would end up paying more rent than ever.
Could Rent-a-Room business start to boom?
The mortgage interest relief cuts will deal a severe blow to those in the business of building and selling property. However, homeowners with spare rooms could find themselves enjoying huge tax breaks if they take in lodgers.
George Osborne’s fresh plans promise that homeowners will be able to receive as much as £7,500 in rent without having to pay tax. This is a rise of £3,250 compared to the current Rent-a-Room scheme.
As statistics have shown, lodging is cheaper than renting in four of five UK cities and furthermore, London lodgers can expect to save an average of £6,036 a year. So, this new accommodation avenue made famous by Airbnb (an online platform that allows individuals to rent out their rooms, entire property, or unique space), could prove an attractive prospect for tenants who find themselves forced out by rental price hikes.
What next?
Thanks to the Budget, the future of rental property in London looks precarious, and although lodging may provide a cheaper option, the outlook for eventual home ownership doesn’t look great either. Help is on the way though, as Emerson Crane Hire noted in their blog on construction and development David Cameron has promised to build starter homes at a discount price to first-time buyers under the age of 40.
These starter homes will utilise brownfield sites – areas of land once used for commercial or industrial purposes that have since become vacant, derelict or contaminated. Such urban regeneration projects aren’t just good news for the environment and first-time buyers. They will also keep land remediation companies like OCS Environmental Services and others specialising in “industrial brownfield remediation projects” busy for the foreseeable future.
It’s certainly an exciting time for the capital that’s just been named the most popular city in the world. Perhaps those at the helm would do well to remember that in order to hold that title, the city must provide a sustainable way for its inhabitants to live.