P&R admits 'significant signs of stress’ in private rental market

But home owners are set to continue to lose tax relief on their mortgages.

The two-tier approach has been proposed in the 2025 budget.

Islanders can still claim tax relief for the borrowing on their homes, but the States has been trying to phase out the relief since 2013. It was going to be fully scrapped next year, but pauses in 2023 and 2024 due to rising interest rates have seen that date knocked back.

The latest Budget proposes restarting that phase-out for principal private residences

‘Given that the interest rate position has now stabilised, and the increase in property prices has ceased, we are not recommending any further pause and therefore the limit on relief will reduce from £3,500 to £2,000 in 2025,’ the Policy & Resources Committee said.

This move is expected to have an impact on about 6,000 individual taxpayers and increase tax revenues by £1m.

The high interest rates of last year saw prices of properties falling, with the house price to earnings ratio reducing from 16.0 times in Q1 2023 to 14.8 times in Q1 2024.

While mortgage interest rates have since dropped, they are still around 5.5% – much higher than rates of about 2% five years ago. And while local mortgage providers have indicated that they expect that rates could drop further, there have been warnings from the UK that rates there are expected to rise.

However, there is better news for those with mortgages held against domestic let property.

Relief against these properties was set to be completely removed by 2026, after a phased withdrawal.

But P&R is proposing halting the withdrawal of mortgage interest relief on residential let property to try and support that market.

‘The private rental market is currently showing evidence of significant stress, with rising prices and very constrained supply,’ the budget states.

‘There are likely a number of contributing factors to the current stress, including higher interest rates, high levels of net migration and higher purchase prices.

'The change in the tax treatment of rental income and the extent to which mortgage interest can be deducted is also a potential contributing factor so the committee is recommending a halt in this policy.

'50% of interest payments will continue to be deductible in 2025 and subsequent years, to prevent further upward pressure on rental prices, and to allow the market to stabilise.’

The average advertised price of rentals exceeds £1,900 a month.