We need Buy-to-live not Buy-to-let

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15 July 2015

Smiles As part of her campaign against the £14 billion of Buy-to-Let tax breaks handed out by the Exchequer every year, Siobhain has written an article for Progress Online about the need to help people buy their own home.

You can read the article here, or read it below.

There is one issue which surpasses all others in my constituency of Mitcham and Morden. At my weekly advice surgery, over half of the people I see are struggling with housing. People who do not have a roof over their head, people who are living in a standard of rented accommodation which should embarrass a developed country like ourselves, and people who cannot get a foot on the housing ladder.As someone who worked as a housing officer for 16 years before entering parliament, I know all too well the suffering and homelessness caused by a broken housing market – which hugely increased under the last government. But those who cannot get a foot on the housing ladder are becoming all too common; in London 82 per cent of people who do not own their own home believe they will never be able to do so. Many constituents in good jobs come to me afraid they will never be able to save enough to put down a deposit on their first home; most of their monthly pay packet goes straight on rent and there is nothing left to save. These people often rent from buy to let landlords who already own their own home, and put their money in housing rather than stocks because they can get a much better return.

One of the reasons housing has become such a lucrative investment is the generous tax relief the exchequer offers to buy to let landlords, who can get tax relief on mortgage interest payments, money spent on repairs and maintenance, and even the accountant fees. Some of these tax breaks do help tenants, we should encourage landlords to keep their property in a good state of repair and improve living conditions. But it is completely unfair to give landlords a £6bn tax break on mortgage interest payments. Why is it right to subsidise the mortgages of people buying their second, third or forth home with taxpayers’ money, when so many people cannot even afford to take out their first mortgage? People paying off the mortgage of their own home that they live in do not get a tax break on the mortgage interest. We should be incentivising buying to live, not buying to let.

Yesterday the government announced changes to the system: landlords will now have to provide receipts for furniture in order to claim relief, and the mortgage interest relief they can claim has been cut. But in reality, these changes are a drop in the ocean, and do little to tackle the ridiculous taxpayer subsidy of private rental landlords. The flawed principle that landlords can claim tax relief on their mortgage interest will remain, landlords will simply get a slightly lower tax relief. The government’s own documents estimate that it will save the taxpayer just £665m pounds a year by 2020, just one tenth of the £6bn pounds in mortgage interest claimed back in tax breaks by landlords in 2012-13.

We are in effect giving a double taxpayer subsidy to landlords because £6b of tax breaks encourage people to buy to let and monopolize the housing stock, then when working people cannot afford their growing rent, the tax payer has to give them housing benefit. Housing benefit paid to private landlords has now reached £9.3bn, or 38 per cent of the total bill. With fewer people able to buy homes, there is more demand in the private rental sector which is pushing up rents.

As of last week, the cheapest two year buy to let mortgage is less than half the cost of the cheapest two year first time buyer deal according to brokers. Taxpayer subsidies should be used to help people get on the housing ladder, not pull the rug from under their feet. Housing should not be an investment, but rather a place for people to live with stability, and put down roots in their local community.

To seriously tackle the root causes of the housing crisis in this country we have to go further. Only by solving the housing crisis will we stand any chance of bringing down the housing benefit bill and balancing the budget sustainably.Cutting mortgage interest tax breaks by more than just ten per cent, or limiting them to new builds could save up to £6bn; this equates to grants to housing associations that could enable them to build 100,000 new social homes. Spending this money on building new houses instead of existing bricks and mortar also helps stimulate the economy and provides jobs. For every £1 spent on housing construction, an additional £2.09 of economic output is generated.

Labour should reconsider buy to let tax breaks, and our party must put the most basic of human desires; the desire to own your own home, at the heart of our offer to the public.