Merryn's Blog

The one thing George Osborne and Jeremy Corbyn have in common: they want to end the great buy-to-let boom

The rise of Jeremy Corbyn means all political parties will be forced to debate social justice, says Merryn Somerset Webb. That means affordable housing – and getting tough on buy-to-let.


Our cover story a few weeks ago was on the matter of buy-to-let. I also wrote about it here: Is this the end for but-to-let?

Our argument is that new rules limiting tax relief on buy-to-let mortgage interest to a 20% tax credit regardless of the marginal rate of the borrower would change the maths for a huge number of investors.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

It's a story that more and more people are beginning to understand. The Times wrote about it this weekend, noting as we have that "all higher-rate taxpayers will pay substantially more in tax, with some forced to pay more than they make in profits, making their investments unviable".

The end of the ability to offset cost against tax might also move landlords who are currently lower-rate tax payers into the higher-rate band (or higher to highest). That's something, says tax expert Tina Riches in The Times, that would restrict their personal allowances and access to child benefit.

Advertisement - Article continues below

This is upsetting a lot of people 26,000 have already signed a petition to have the tax relief reinstated. But we doubt that's going to happen. Instead of getting easier, the environment for buy-to-let investors is likely to get a lot tougher.

It's all about Jeremy Corbyn and something he and George Osborne might turn out to have in common. As Brian Dennehy of points out, while Jeremy Corbyn is unlikely to ever be prime minister, he will change the focus of our political debate: "all parties are now going to have to start debating social justice" properly whether they want to or not. And the UK's many housing have-nots are going to want to shift that conversation firmly towards the provision of affordable housing.

The buy-to-let sector has been pumped up by low interest rates, and by QE slamming down yields on other asset classes. Also, by a looser regulatory environment for investors than owner occupiers. And, of course, by the many tax breaks on offer to buy-to-let owners. Corbyn is likely to "focus on these distortions and the cost to society" when he discusses housing.

In that kind of environment, how likely is it that the chancellor will give into political pressure to drop his tax changes? We'd say very unlikely.

Worse (for investors at least) it might give Osborne the political cover/excuse he needs to cut the relief further. He knows rents are too high and house prices are inflated, and, given his actions so far, it seems clear that he wants to call an end to the great buy-to-let boom. Corbyn looks likely to be able to help him do just that.




Beyond the Brexit talk, the British economy isn’t doing too badly

The political Brexit pantomime aside, Britain is in pretty good shape. With near-record employment, strong wage growth and modest inflation, there is …
17 Oct 2019
Equity release

Equity release: how to tap your house for cash

The pros and cons of releasing equity from your home compared with moving to a smaller one
10 Feb 2020

Will Britain close its doors to immigrants post-Brexit?

Details have not yet been forthcoming, but Britain will soon have a new immigration policy. What will that mean for businesses and investors?
8 Feb 2020
House prices

Is the jump in house prices just a Brexit bounce, or is it more durable?

UK house prices rose sharply in January. Some of that is down to the end of Brexit uncertainty – but not all. There is a real risk that prices will ke…
7 Feb 2020

Most Popular

Silver and other precious metals

You should all own some silver. Just don’t expect it to make you rich

Silver is cool, beautiful and immensely useful. But for investors it's the most frustrating of metals. Dominic Frisby explains why you should own some…
12 Feb 2020

Money Minute Wednesday 12 February: grim times for European industry

Today's Money Minute previews industrial production in the eurozone, plus the latest from America's central bank.
12 Feb 2020
Investment strategy

The secret to avoiding being panicked out of your portfolio

With the coronavirus continuing to occupy headlines, investors still aren’t sure how to react. But the one thing you mustn’t do is panic. Tim Price ex…
11 Feb 2020

The rare earth metal that won't be a secret for long

SPONSORED CONTENT – You can’t keep a good thing hidden forever; now is the time to consider Pensana Rare Earths and the rare earth metals NdPr.
31 Jan 2020