Has Buy to Let Shackled First Time Buyers?

by Mark Johnston

                  Has Buy to Let Shackled First Time Buyers?

Research has shown that over the last decade, literally tens of thousands of new investors bought dwellings to let out.

A growing population and rising living standards drove up housing demand. Experts say that the imbalance has benefited investors in the long term by lowering vacancy risk and raising their capital gains.

Figures show that Private renting in England grew by nearly half a million in the three years to 2010. Almost 90 per cent of English landlords are rent to private individuals.

Figures therefore show that rental income is steady with potential for capital appreciation.

Recently the Chancellor George Osborne ordered a closer scrutiny of buy to let tax reliefs after finding out that some of Britain’s richest landlords pay little or no income tax.

 The coalition Government says it is committed to closing loopholes that allow the super rich to avoid paying taxes, arguing that tax avoidance is “morally wrong”.

It seems that many accountants and financial experts have been openly advising landlords to switch mortgage debt from their main homes to rental properties to boost tax savings.

Research by the investigative website Exaro found buy to let mortgage tax relief is worth £2 billion a year, which is the same amount that is being cut from housing benefit as part of the austerity drive.

Buy to let landlords can deduct their mortgage interest as a cost saving an average of £1,400 per property per year.

Financial experts stated that many landlords are using the loophole to cut their tax bill to close to zero, meaning they have more spare cash to use for investing in other properties.

 Therefore the campaign group Priced Out now feel that buy to let landlords are now pricing out first time buyers.

Buy to let investors are competing with first time buyers for the same properties and have more buying power, therefore they usually have the upper hand.

Matt Griffith of first time buyer campaign site, pricedout.co.uk says “in a market where equity is king, investors are able to outbid first time buyers for available lower level properties”.

Director at mortgage broker Private finance Melanie Bien agrees with Matt Griffith by saying “canny landlords are cashing in a perfect storm of rising rents, falling mortgage rates and stagnant property prices”.

Some critics have argued however that the politicians seem to be blurring the line between tax evasion and tax avoidance.

The former involves breaking tax rules and is, of course, illegal. The latter involves sticking to the rules but planning your finances carefully so you don’t pay more tax than you have to.

 The Treasury said it has no intention of stopping buy to let investors from deducting mortgage interest from their earnings.

A spokesman for HM Revenue and Customs said: ‘There is no such thing as a buy to let tax break: it is simply a business cost which is a claim against tax the same as any other business.’

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