Does George Osborne's macho Budget mark the beginning of leaner times for buy-to-let investors, and higher rents for tenants?

Does George Osborne’s macho Budget mark the beginning of leaner times for buy-to-let investors, and higher rents for tenants?  Or will it help first-time buyers and 'lodger landlords'?

The chancellor's decision to cut higher rate tax relief on buy-to-let mortgages was lambasted on Wednesday afternoon by John Blackwood, chief executive of the Scottish Association of Landlords, as "a shocking decision".

He said: "As a result of this increased cost and risk to landlords, you may see some within the sector feeling they are forced to increase their rent levels which would obviously have a huge negative impact on tenants."

The SAL and the Residential Landlords' Association said that although only 20 per cent of landlords would be affected, "many of these, if not most, will have more than one property with an interest charge against each".

It urged the government to "hit the pause button" on the proposals to avoid damaging housing supply.

However, industry veteran David Alexander, managing director of Glasgow and Edinburgh lettings agency DJ Alexander said that by keeping basic rate tax relief the chancellor had "recognised the role played by fairly ordinary people in providing homes to rent".

He went on: "Most of today's landlords are not fat-cats but wage-earners or pensioners for whom buy to let is an attractive income stream during a long period of historically low interest rates."

Andy Knee, chief executive of property services group LMS, said the move would help first-time buyers in hotspot areas. "Rising prices have created a generation of squeezed renters, unable to save enough for a deposit on a first home, who find that limited housing stock, a falling turnover of homes, and competition from tax subsidised landlords has barred them from the market".

There is also a big bonus for people letting out a spare room, with the tax relief on rental income rising from £4250 to £7500.

Matt Hutchinson of house and flat share site Spareroom.co.uk said: "All too often housing initiatives benefit a select few - but this helps millions of renters and homeowners." He said the average 'lodger landlord' earned £6,071 outside London.

The Low Incomes Tax Reform Group said it could help first-time buyers, those struggling to meet mortgage payments, and those seeking affordable housing. "It may also allow some individuals to be taken out of self assessment, if they only complete a tax return because of rental income above the current rent-a-room relief limit."

Danny Cox, chartered financial planner at Hargreaves Lansdown, said: "Buy to let just got a lot less attractive for anyone borrowing to fund their purchase. The question is whether this is just the thin end of the wedge and paves the way for tax relief to be abolished altogether in the coming years."

But Russell Gardner, head of UK real estate at accountants EY, said: "While all this may marginally dampen down buy-to-let as an investment proposition for the middle classes over time, we doubt people will sell. Despite the changes, buy-to-let still remains quite an attractive part of a broader investment portfolio."

The government says the current tax system unfairly favours landlords over ordinary homeowners. "Tax relief for finance costs is particularly beneficial for wealthier landlords with larger incomes, as every £1 of finance cost they incur allows them to pay 40p or 45p less tax. The Bank of England has also noted in its recent Financial Stability Report that the rapid growth of buy to let mortgages could pose a risk to the UK's financial stability."

The government will phase in the reduction in tax relief over four years from 2017, giving landlords plenty of time to adjust.

Austin Lafferty, director of GSPC, said solicitors expected to see "a readjustment of rents". He went on: "While we understand the motivation behind evening out the tax relief regime so that investors do not have an unfair advantage over homebuyers, it is also important to encourage the kind of investment in property, contents, services and personnel that buy-to-let represents as it helps to stimulate the economy and also provides affordable short to medium term accommodation for those not in a position to buy."

There will also be a reform of how landlords are able to deduct 10per cent of their rent from their profit to account for wear and tear, irrespective of their expenditure. "This means landlords can reduce their tax liability even when they have not improved the property," the government says. " From April 2016, the government will replace this allowance with a new system that enables all landlords of residential property to only deduct costs they actually incur."

Frank Shepherd at accountants Baker Tilly commented: "Good news for tenants in properties in need of refurbishment, although not if landlords increase their rent to compensate for these lost reliefs."

Elaine McInroy, tax expert at Saffery Champness in Edinburgh, said: "This is a fairer way for many to obtain their tax relief, based on actual costs incurred, although does add a layer of complexity in record keeping."