Britain’s biggest housebuilder says reduced tax breaks for Britain’s two million buy-to-let landlords will not derail the UK housing market.
Shares in housebuilders tumbled after the chancellor used his summer budget to reduce the tax relief on buy-to-let mortgages for higher-rate taxpayers. The move triggered warnings of a mass sell-off of homes, or widespread rent rises.
Barratt, whose shares have advanced more than 60% over the past year, fell almost 6% after the surprise announcement. They were up 1.7% at 604.5p in early trading on Thursday.
The company said it built 16,447 houses in the year to the end of June, up nearly 11% on the previous year. Chief executive David Thomas said the company sold about a 10th of the total to landlords, and most of them were bought for cash or through a company.
“The number of transactions that would be in any way impacted by the changes would be much lower than 10%,” he said. “We felt the reaction in the market yesterday was very overdone.”
However, Greg Hill of smaller housebuilder Hill, which focuses on London and the south-east, said cuts to tax breaks could have an impact: “We are concerned that the reduction in tax relief for buy-to-let investors to 20% could reduce demand for new homes. Buy-to-let investors are crucial in providing more homes for rent across the UK and these changes could potentially impact the growth of the new-build private rented sector.”
From April 2017, landlords will no longer be able to claim tax relief worth 40% or 45% of the interest payments on their buy-to-let mortgages. The maximum tax relief will be set at 20%, although the change will be introduced over a four-year period.
The private-rented sector has grown rapidly in recent years, and one in five homes is now owned by landlords. However, property experts said landlords investing through limited companies should be able to avoid the impact of the cut in tax breaks.
Barratt estimates it made profits before tax of £565m in the past year, up 45% on the previous year. This beats City expectations of £555m of profits. The average house selling price increased 7% to £235,000.
Thomas said demand for property remains strong, outstripping supply. The industry is working hard to ramp up output by a further 50,000 to around 200,000 new homes a year, amid signs that the housing shortage is worsening.
He added: “There is a very significant supply–demand imbalance, so the underlying fundamentals are clearly not affected by yesterday’s announcement. The fundamentals for the market remain very positive.”
