The former Conservative shadow chief secretary to the Treasury has condemned the government for its changes to how buy-to-let investors are taxed, warning it “risks the very crisis” the Bank of England recently warned about.
Lord (Howard) Flight argued it is “precisely the wrong time to be attacking the buy-to-let market when the balance of supply and demand is shifting”.
He urged the government to re-think its “sudden attack” on buy-to-let, saying it could “create a sharp fall in prices, if not a crash”.
Chancellor George Osborne announced in November there would be a 3 per cent premium on stamp duty for buy-to-let investors and those buying second homes, in a bid to raise £1bn by 2021.
According to Lord Flight, potential buyers will be put off by the additional 3 per cent stamp duty, particularly on top of existing rates in London.
“A significant increase in those selling buy-to-let properties may also put thousands of tenants’ security at risk as buyers will want to sell with vacant possession.”
This was a second blow to the industry after Mr Osborne in his summer Budget announced plans to stop landlords offsetting interest costs on their mortgages against profits before calculating their tax bill.
Lord Flight claimed this had been the only buy-to-let ‘tax advantage’ previously, and that new measures, however, affect this by limiting the tax deductibility of mortgage interest to a 20 per cent tax rate.
“This will hit more modest buy-to-let investors the most, while many of the more sophisticated have their buy-to-let properties held through a company.”
He argued the government is “misconceived” in thinking buy-to-let investment has squeezed young buyers out of the market, and blamed it on developers “hoarding” land.
“Politically, the government may lose more votes over this issue than they realise: there are many thousand buy-to-let investors living in marginal constituencies.”
Lord Flight described the buy-to-let market as an “entirely sensible market economy development”, which provided an alternative to saving for old age through pension schemes.
He also pointed out that buy-to-let has provided some three million homes for those not able yet to afford to buy property.
“Younger buyers cannot afford market prices in London and the South East, and cannot borrow to finance the substantial stamp duty costs of acquisition.”
In addition, the Tory peer said if there is a crash in property prices in Greater London, this will have a major impact on banks and on the economy as a whole, for which he suggested the government will be blamed.
He argued that it would have been much fairer for the reduced 20 per cent allowable offset tax on mortgage interest to apply to new, and not existing, buy-to-let investments.
Andrew Turner, director of intermediary CommercialTrust.co.uk, said he agreed with Lord Flight’s observation that scarcity of property, rather than the popularity of buy-to-let investment, is the chief factor in driving up prices to unaffordable levels and locking millions of buyers out of the market.