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“UK RENT BOMBSHELL"

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TAX RELIEF CHANGES TO HIT PRIVATE LANDLORDS AND TENANTS

20-30% rent increase to hit the private rent sector.
As a result… it is still good to invest in UK buy-to-let… less to be a tenant.

Is there going to be 20-30% rent increase? Is it therefore going to change UK buy-to-let market and profitability? Tax rises have surely hit the private rent sector. According to a former independent member of the Bank of England’s Monetary Policy Committee the landlords will seek to recover their money from tenants. It is therefore going to hit tenants rather than investors.

A 3% surcharge is being added on the purchase of buy-to-let properties since April 2016. From this April (2017) the Government restrictions on interest relief for landlords will start to take place.

Against or Pro?

There are voices against those changes. David Miles, Professor of Financial Economics at Imperial College of London beliefs those changes will have negative impact on the supply of rental properties. Professor’s calculations reveal that in general “rents would need to rise between twenty percent and thirty per cent” to offset the impact of the Government’s tax rises.

Professor Miles doesn’t agree with the statement of the previous Chancellor claiming that the tax changes are to make it easier for the first time buyers to enter the UK buy-to-let market. He rather believes that most of all “aspiring first-time buyers are hardly helped by squeezing the supply of rental property and driving rents up.”

“Professor Miles’ assessment proves that current tax policy will be counterproductive in making rents affordable and therefore increasing supply to meet the growing demand. In conclusion, it’s time for the Government to think again” comments David Smith, policy director at the Residential Landlords Association.

As a result, it seems the landlords will survive. Increase on rents are going to compensate the loses made by the changes to tax relief. Consequently, who is going to pay, is the last link of this chain, the tenant.

Read here Professor David Miles’ full report on “The impact of recent tax changes on the private rented sector”.

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