Chancellor George Osborne has pledged to restrict mortgage interest relief to the basic rate of income tax.
Giving his Summer Budget speech today, he said the higher rate of mortgage interest relief would be withdrawn gradually over a four-year period from April 2017.
He said: “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. And the better off the landlord, the more tax relief they get. For the wealthiest, for every £1 of mortgage interest cost they incur, they get 45p back from the taxpayer.
“All of this has contributed to the rapid growth in buy-to-let properties, which now account for over 15 per cent of new mortgages, something the Bank of England warned us last week could pose a risk to our financial stability.
“So we will act, but we will act in a proportionate and gradual way because I know many working people who save and invest in property depend on the rental income they get.
“We will retain the mortgage interest relief on residential property but we will now restrict it to the basic rate of income tax and to help people adjust, we will phase in the withdrawal if the higher rate of relief over a four-year period and only start withdrawal in April 2017.”
Osborne said reforms to planning would be announced on Friday and that those who rent out a room in their property would see tax relief rise to £7,500, from £4,250 at present.