Capital Economics (CE) has reported that the ability to deduct mortgage interest before paying tax on rental income does not offer buy-to-let investors an advantage over owner-occupiers.

However, the firm reports: ‘But the fact that investors are not subject to the majority of regulations that govern first-time buyers and home movers does. Given that those regulations have been strengthened recently, and the Government has resisted a request from the FPC for limited BTL powers, the share of lending going to investors is likely to continue to rise gradually.’

According to the CML, mortgage advances for buy-to-let (BTL) house purchase were up 13% year-on-year in Q4 2014 but over the same period, loans to home movers and first-time buyers (FTBs) were down by 5.2% and 0.1% respectively. That has once again raised the long-running concern that BTL investors are crowding other buyers out of the housing market.

CE reports: ‘It is certainly not the case that BTL investors have everything going for them. Despite oft-repeated claims to contrary, the tax system actually favours homebuyers. While it is true that a BTL investor can deduct mortgage interest payments from their rental income before paying income tax, it is sometimes forgotten that homeowners pay no tax at all on the housing services they consume. Furthermore, people buying their own home can take advantage of lower mortgage rates. According to the Bank of England, the average rate on new non-regulated loans (88% of which are BTL) was 3.7% at the end of 2014, compared to 3.2% for regulated loans.’