Stuart Cunningham, Chief Executive of commercial mortgage broker Commercial Trust, offers his comments on the government's recent decision to restrict mortgage interest relief for buy-to-let borrowers.

Property investors could have been forgiven for breathing a sigh of relief when the Conservatives secured a parliamentary majority in May's General Election, putting to pasture Labour's plans to cap private rents and introduce mandatory three-year tenancies.

That sigh of relief proved premature, however, when George Osborne delivered his Summer Budget speech on Wednesday 8th July. In it, he announced the phased withdrawal of buy-to-let mortgage interest relief for landlords on the higher tax bands of 40% and 45%, so that, by the 2020–21 tax year, all relief would be granted at the basic rate of 20%.

In retrospect, the groundwork had been laid. The press, in the run up to the budget, reported on rumours that the relief would be scrapped in its entirety [1]. And when the Bank of England commented in its July Financial Stability Report that the buy-to-let market posed "a risk to financial stability", it became clear that landlords were in the cross-hairs [2].

So it is neither the extent of the restriction nor its suddenness that makes it so baffling – it is how illogical it seems.

Only relief for finance costs will be withdrawn, and even then, only at the highest tax bands. HMRC's impact statement defines finance costs as mortgage interest, interest on loans that are used to refurbish rental properties and fees related to the aforementioned loans and mortgages [3]. Capital repayments are excluded, as before, and all other business expenses seem to be untouched.

To Let SignBy allowing landlords to continue to claim the full rate of relief on business costs, the government is sending a very mixed message – one with which landlords are sadly all too familiar – by refusing to treat buy-to-let either fully as a business, or fully as an investment activity. In essence, established accountancy principles have been rewritten to exclude a very particular group from a right that all other businesses enjoy.

It is clear that this was a populist move. Buy-to-let has been unpopular for years, despite accounting for over three quarters of new homes in the year to March 2015 and almost a fifth of all homes in total [4]. And homeowners – one of the Conservatives' core voting groups – have long bemoaned the advantages that landlords seem to have in the buying market, deductible mortgage interest included.

But landlords are also a core Conservative vote. (There are several of them in government!) So the measure had to appear balanced; hence the phased withdrawal, and the retention of basic rate relief. According to HMRC, only one in five landlords will receive less relief due to the new restrictions [5]. But as the Residential Landlords Association (RLA) observed in their response to the measure, it is the number of properties affected – not the number of landlords – that matters.

The Eastern Landlords Association, of which I am a director, has approximately 1,400 members who between them administer an estimated 20,000 properties in the East Anglian region. This is an average of 14 properties each. It is only logical to assume that the larger portfolios will be owned by the wealthier landlords, and so far more than a fifth of tenants will potentially be about to feel the brunt of this decision.

Landlords do not tend to operate on comfortable margins. As National Landlords Association (NLA) CEO Richard Lambert pointed out in his (sadly unheeded) open letter to the chancellor, less than 5% profit is typical. Not malice, nor indifference, but simple economic necessity dictates that the cost of increased tax bills will be passed on to tenants.

And what of landlords in tougher markets who cannot raise rents? Those letting to tenants on benefits, who have just had some or all of their income frozen for the next four years as part of the very same Budget? These landlords will presumably need to cut back elsewhere, in some cases doing only the bare minimum to maintain their properties, in order to break even.

Perhaps this budget compels us to read between the lines; to look at the tax relief restriction not in isolation, but alongside other measures – for instance, the cut in corporation tax to 18% by 2020 and reform of dividend taxation. Perhaps the government hopes to facilitate a move to a fully institutional rental sector, compelling larger, wealthier private landlords to move their portfolios into limited companies in order to maximise profits. (Though if this is the case, the means are divisive and more than a little oblique.)

But I can't help but think that this move was ill thought-through; a grab for popular approval to soften the blow of an otherwise punishing budget, and one with an impact that was too vaguely and optimistically assessed. Successive governments have failed to provide sufficient social housing, and failed to make homeownership an affordable option for millions of people. Private landlords are responsible for providing homes for the nation's tenants, and they should be encouraged to continue providing this vital service – not punished for it.

Written by Stuart Cunningham, Chief Executive of Commercial Trust.


[1] Clements, L. "Summer Budget 2015: Could George Osborne axe landlord's buy-to-let tax breaks?" Express. 26 Jun 2015.

[2] "Financial Stability Report July 2015". Bank of England. 1 Jul 2015.

[3] "Restricting finance cost relief for individual landlords". HMRC. N.D. Retrieved on 10 Jul 2015.

[4] "The Kent Reliance Buy to Let Britain report, Edition Two". Kent Reliance. N.D. Retrieved on 10 Jul 2015. (

[5] Restricting finance cost relief for individual landlords.

Comment Here!