Chancellor George Osborne announced yesterday that the tax relief given to landlords would be restricted in order to level the playing field between landlords and buyers.

However, a mortgage industry trade body has warned that the changes could have a negative impact on the market.

Peter Williams, executive director of the Intermediary Mortgage Lenders Association, said many would be left ‘disappointed’.

“Anyone expecting this change to result in a great levelling of the playing field in the housing market is destined to be disappointed,” he said.

“Following comments from the Bank of England last week, it is also a worrying sign of the growing trend to talk down buy-to-let and the private rental sector, rather than address the chronic lack of housing that is putting such pressure on first time buyers as the UK population grows.”

Williams said that landlords already paid both capital gains tax and other tax on rental income.

“Reducing landlords’ mortgage tax relief is likely to prove a populist measure but the idea that tax benefits have been a big driver for growth in the private rental sector is flawed,” he added.

Brian Murphy, head of lending at mortgage brokers Mortgage Advice Bureau, said this would impact on landlords’ profits but is less damaging than it could have been.

“The restrictions on buy-to-let mortgage interest tax relief announced in the Budget will almost come as good news to those landlords who feared it would be completely abolished,” he said.

“Totally removing the tax relief could have led to significantly reduced profits for borrowers who pay above the basic rate of income tax, particularly as mortgage interest represents a significant proportion of landlords’ annual costs. The decision to halve the 40% tax relief may not be popular, but will be far easier for landlords to adjust to.”