George Osborne has just announced in his Summer Budget that there will be a restriction on mortgage interest relief on residential property to the basic rate of income tax.

Osborne stated today that there needs to be a more level playing field between those buying a home to let and those who are buying a home to live in.

“Buy-to-let landlords have a huge advantage in the market as they can offset their mortgage interest payments against their income, whereas homebuyers cannot,” Osborne explained.

“And the better-off the landlord, the more tax relief they get.

“All this has contributed to the rapid growth in buy-to-let properties, which now account for over 15% of new mortgages”

“So we will act – but we will act in a proportionate and gradual way, because I know that many hardworking people who’ve saved and invested in property depend on the rental income they get.”

Osborne stated that it will retain mortgage interest relief on residential property, but will restrict it to the basic rate of income tax.

"Speaking through B&C only yesterday, I said the Chancellor should today look at the inequitable tax favouritism afforded to buy-to-let landlords. Much to my surprise, he has done just that," commented Bob Sturges of Omni Capital.

"Whilst not scrapping mortgage interest tax relief altogether, he has at least acted to reduce its more damaging effects by announcing it will be limited, over time, to the basic rate of tax only.

"Whilst bad news for wealthier landlords, it is the right thing to have done for the economy as a whole and for the BTL sector in particular. By acting now, Osborne might help calm down what is looking like a worryingly inflating bubble.

"Elsewhere in the Budget, it was gratifying to see that room rental tax relief will rise from £4,250 to £7,500 per annum.

"It is estimated there are 19 million empty bedrooms in owner-occupied homes in England alone.

“This long-overdue move will therefore encourage more valuable residential space to be made available, and is likely to give a big boost to the Private Rented Sector - a key focus market for many alternative lenders."

Benson Hersch, CEO of the ASTL, said: “Clearly the government is either optimistic about the future or worried about how politically digestible austerity programmes are.  

“The restriction of tax relief on BTL interest for individuals may accelerate the move to using companies, especially since corporation tax is reducing.  

“Overall, the effect on the property market will probably be neutral and on the general economy will be positive.”

Rob Jupp, CEO of Brightstar added: “The budget was surprisingly light on information to boost the housing market.  

“The announcements on the mortgage interest rate for buy-to-let to the lower rate tax band is likely to have quite an effect though and could well dampen the market.  

“Ironically not for the lower end ‘accidental’ landlords who are less likely to be disadvantaged by the move and not for company schemes who invest in property.  

“Measures have been needed to create more of a balance for first time buyers who have often been disadvantaged by investors with a greater means to buy, so time will tell whether this announcement goes a step towards readdressing the balance.

“What we really needed to hear were measures as to how more housing will be built to ease up the supply and demand issues.  

“The planning announcement on Friday needs to make it easier to build more houses especially in brown field areas in order to help keep house prices under control, although the markets don’t seem optimistic for house building prospects as the shares in house builders have already dropped since the budget.”

Adrian Anderson, Director of Mayfair-based mortgage broker Anderson Harris, stated:  “There had been fears among landlords that relief on mortgage interest payments for buy-to-let landlords would be completely abolished so while the changes will hit higher-rate taxpayers, it is not as bad as it might have been.

“It is only fair that there is a more level playing field between first-time buyers and landlords but if this tax break had been completely withdrawn, buy-to-let would have been far less attractive to investors.”

James Souter, Partner in the property litigation team at law firm Charles Russell Speechlys, added: “This announcement may prompt some buy-to-let landlords to look again at whether it’s worth regulation and paperwork.

“The Government’s plans to roll out ‘right to rent’ checks by the end of the year – requiring landlords to verify the immigration status of their tenants or face hefty fines – plus the introduction of new procedures intended to prevent retaliatory evictions, but likely to make it harder for landlords to evict genuinely troublesome tenants, means that the legal burden on buy-to-let landlords is greater than ever.”

“It is too simplistic to blame landlords snapping up rental properties for the property shortage,” continued Adrian Anderson.

“People have to live somewhere, and if they can’t afford to buy, then they must rent.

“With many first-time buyers struggling to get on the property ladder and growing families unable to find the housing they need, housebuilding should be at the centre of the Government’s strategy so we look forward to see what further planning reforms are proposed.

“Detailed plans are required as to how effective changes will be achieved.”

Henry Woodcock, Principal Mortgage Consultant at IRESS, stated: “The potential revenue generated by cutting the tax relief on buy-to-let mortgage interest was clearly a draw for the Chancellor, but it may trigger unintended consequences.

“Buy-to-let has been the key area of growth in the mortgage market, and changing its tax treatment is likely to dampen mortgage activity and demand from property investors, which will hit overall lending figures.

“Equally, we may see a number of landlords leave the market if their costs rise, which in turn will lower the potential revenue of the move.

“For those landlords that remain in the market, they may need to increase rents to cover increased financing costs, and higher rents will make it more difficult for prospective buyers to build their first deposits.”

Founder and CEO of online estate agent eMoov.co.uk, Russell Quirk, concluded: “George Osborne’s intention to level the playing field between landlords who buy property to let and those who buy to live, is going to have financial consequences for renters in the private sector.

“Landlords are going to be up to 20% worse off as previously enjoyed tax relief rates of up to 45% soon disappear.

“Based on the average rent they could be up to £2000 worse off each year. I can only see the result being an increase in rental prices which in turn further hampers those trying to save to get on the property ladder.”