London tenants to be hit with price hikes after landlords' Budget battering

Wealthy buy-to-let landlords saw two of their tax breaks blown up by George Osborne

Mr Osborne scrapped a deal that allowed housing associations to raise rents by 1% more than inflation (Getty Images)

London’s growing army of property renters could be set for a sharp increase in their monthly payments after landlords were hit by a sharp Budget battering yesterday.

Wealthy buy-to-let landlords saw two of their tax breaks blown up by George Osborne which are likely to be passed onto their tenants.

Currently, landlords can claim tax relief on their buy-to-let mortgage interest pound for pound on the amount of tax they pay out of their rental income. However, George Osborne is now phasing down the relief on the mortgage payments to 20%, hitting higher earners on the 40% or 45% tax bands.

The measure is set to cost landlords a total of £1.2bn by 2020.

The Chancellor is also abolishing the so-called “wear and tear allowance” which allowed landlords to cover the costs of maintaining the property. This move will save the Treasury £705m.

Aidan Sutton, partner at PWC said: “This dramatically changes the scene for many thousands of would-be buy-to-let landlords. They’ll have to work out if they want to find an alternative investment to property or increase their rents. I suspect many will opt for the latter.”

Adam Challis, head of residential research at property agent JLL, said: “This will push up rents, perhaps by as much as 5-7% per annum, as landlords look to recoup lost income”.

“This change will negatively impact on supply as off-plan investor sales are vital to trigger development finance and expand the supply of rental properties. Government needs to focus on expanding the supply across all property types, not just home ownership. Renters are the fastest growing tenure in the housing market and they have been badly overlooked by this Budget.”

According to Homelet average rental values for new tenancies in London (£1,472pcm) were £124 more expensive per month in May, compared to average rental values in the same period in 2014 (£1,348pcm).

The moves are likely to hit sales of new-build flats going up in the capital as many of them go straight to the rental sector. Shares in housebuilders and buy to let lenders like Paragon have fallen sharply as a result.