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Plea to reverse decision on mortgage interest relief, latest House Price Index, UK house sales hit by soaring mortgage costs, and Landlords and Capital Gains Tax

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07 June 2023

By UKinsuranceNET In News

The latest UK property news headlines are underscored both by the challenges facing the private rented sector and continuing concern about the overall state of the housing market.

Pressure groups for landlords, for instance, have issued a plea for the reversal of the decision made several years ago to abolish the earlier scheme of income tax relief for the interest paid on buy to let mortgages.

Meanwhile, the latest house price index for the month of May suggests that the market has more or less stabilised. Nevertheless, there is also evidence that the volume of recent property transactions has been hit by the soaring cost of mortgages.

If you are a landlord selling any investment property, you might want to consider the implications of the latest reduction in the threshold for payment of Capital Gains Tax (CGT).

Plea to reverse decision on mortgage interest relief

The private rented sector is characterised by a marked imbalance between supply and demand – with the current shortage of available rented accommodation to the ongoing detriment of hopeful tenants.

One way of encouraging landlords to make the necessary investment in the buy to let market and swell the volume of available accommodation would be the return of the previous tax regime in which landlords gained income tax relief on mortgage interest repayments. A story in Landlord Today on the 1st of June argued that a return to the previous tax arrangements would help to ease the current housing crisis.

Since the beginning of the tax year in 2021, income tax relief for landlords has been restricted to the basic rate of income tax. The earlier arrangements for more generous tax relief on mortgage interest repayments were finally phased out.

But rented accommodation continues to be lost to the buy to let market. Commentators believe that the Bank of England base lending rate is likely to peak at around 5% but stay above 2.5% for at least the next four and a half years. If that does happen, the same commentators estimate that a further 735,000 homes (13% of the current total) will be withdrawn from the private rented sector as more landlords sell up and quit the industry.

House price index – May 2023

House prices continued to fall, but at a slower rate, and the market appears to have stabilised. That is the principal takeaway from the latest house price index published by the online listings website Zoopla on the 30th of May.

Thanks to a revival of confidence in the market, more homeowners have been prepared to put their property on the market and sales have been stimulated by the reduction in mortgage interest rates in the opening months of the year. The impact of higher mortgage rates has been lessened by the effect of regulatory controls.

Higher interest rates and the increased costs of mortgages are expected to reduce demand and lessen sales transactions in the latter part of the year.

In those parts of the country where house prices have escalated more steeply, demand has been weaker, and a picture is painted of varying market conditions across the country as a whole.

UK house sales take a hit as interest rates and mortgage costs soar

The impact of soaring interest rates and mortgage costs on the housing market was illustrated in further detail by Yahoo Finance on the 31st of May.

In response to the rising interest rates, the volume of residential property transactions fell by 25% according to Yahoo’s analysts. The estimated total volume of transactions this April is a little over 18,100 – a quarter lower than in the same month last year and 8% lower than transactions recorded this March. As a result, sales activity is at its lowest in more than 18 months.

Because the Bank of England has made successive increases in the base lending rate, mortgage costs have risen still further – and this has had the effect of dampening demand in the housing market. Even so, more aggressive increases in mortgage costs may be held at bay by the continuing competition among lenders.

Landlords and Capital Gains Tax (CGT)

An article by the Buy Association recently carried a timely reminder for any landlords selling their buy to let property about Capital Gains Tax (CGT).

If you are planning to sell your investment property, the first important jog to your memory is the change made at the beginning of this tax year in April for the threshold at which CGT becomes liable. The initial allowance has been reduced from the previous £12,300 to just £6,000 – so, considerably more property owners can be expected to become subject to this tax.

The precise amount you will need to pay in CGT depends on a host of factors – so you might want to check out the official website to calculate how much you might need to pay.

Remember, too, that if you are liable for CGT, the sale of your let property must be registered with HM Revenue & Customs within 60 days. That condition has been in effect since 2021 and is important because if you fail to make the necessary registration you face stiff fines – which increase the longer you fail to take action.

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