Over half of landlords unaware of buy-to-let rule changes
02-09-2016
by Stephen Little
More than half of all landlords are unaware of the impending changes to mortgage law affecting buy-to-let properties, a new survey has revealed.
Accidental landlords – those who rent out a property due to being unable to sell or inheriting a home – are least likely to know about the changes taking place and could end up being the worst hit.
According to Direct Line, 62% of new buy-to-let mortgage applicants have no idea about the changes to tax relief on mortgage payments and the EU’s Mortgage Credit Directive. This figure rose to 71% among accidental landlords.
From April 2017, changes to mortgage tax relief will be phased in and landlords will no longer be able to claim tax relief on their mortgage payments. They will not be able to deduct mortgage interest payments before calculating their tax bill and instead will get a tax credit equivalent to 20% basic-rate tax on this amount. This means that when interest rates go up, some landlords could end up paying tax on a loss when they lose tax relief next year.
Under the EU’s Mortgage Credit Directive, landlord mortgage lending will be viewed as consumer lending, which could make it subject to more stringent lending criteria.
Accidental landlords with one or two rental properties may not be able to pass the expected new affordability tests.
A further blow to landlords is the extra 3% stamp duty they will have to pay from April when buying a second home or a buy-to-let property.
Nick Breton, head of Direct Line for business, said: “The new EU legislation on mortgages coupled with the government’s increase in buy-to-let taxation could significantly alter the buy-to-let market, so we would encourage any mortgage applicants to think carefully about the new law and how this could impact them as a landlord.
“With house prices in the UK rising by 7% in the year leading to October 2015, and with the estimated average deposit standing at more than £61,000, it is imperative that landlords are able to maintain a suitable amount of property to house the population of young people saving up to buy their first property, or those seeking a temporary stay in a town or city.”
With the new legislation set to be phased in between 2017 and 2020, Direct Line offers the following tips:
Get good insurance cover – as well as covering the building and its contents, landlord insurance can also cover the landlord’s liability and loss of rent following an insured event such as a fire or flood. The average rental cost is £739pcm4 so not having the right cover in place could have a significant impact on your finances, especially if the property is uninhabitable for a period of time while repairs are taking place.
Secure tenants for less – letting and management agents currently charge between 10 and 15 per cent of the monthly rent in fees. If you have time and are prepared to take on the responsibility of finding tenants, making sure you are following all the correct procedures and managing your properties yourself, you could save more than £1,000 per year. If you rent a property privately you can also claim back the cost of advertising, credit checking, referencing, deposit protection and professional inventory costs.
Make the most of existing tax benefits – Any money spent on keeping a property in a good state of repair is tax deductible, as are all broker and arrangement fees. You can also claim the whole cost of council tax or utility bills that a tenant would pay.
Keep up to date with legislation – It is important to continually keep an eye on the policies affecting landlords to ensure that a property complies with the latest legislative changes. It is also important to consider whether a property is not just affordable in the short term but in the medium to longer term as often relief is phased out and additional taxes phased in over a number of years.