The Buy to let and Let-to-Buy market, for those unable or unwilling to sell their current home, was booming. Fuelled by very competitive rates for BTL mortgages at 75% loan to value and under – with the lowest interest rates we’ve ever seen and very reasonable rates available on limited 80% LTV products.
Whilst all seemed rosy, the Chancellor had other ideas – raising taxes, with landlords one of the victims of recent budgets. Higher rate tax paying landlords will also no longer be able to claim tax relief above the 20% rate of tax on future mortgage interest payments (April 2020). This will likely catch out ‘middle income’ earners in and around the 40% tax bracket due to the way this tax is calculated – this change obviously affects higher earners, but middle earners may not expect to be treated as a higher rate tax payer.
Some will find it hard to empathise with ‘middle income’ landlords, who earn reasonable incomes and own property, but the question must be asked: Is it fair? Is it fair that one type of business can offset its costs (interest) against its profits to mitigate taxes and another, a property business cannot? Personally, I do not think it is fair, but most importantly I think this will hit hard pressed tenants the most. These costs will simply be passed on in rent increases, which are already rising due to demand. Rents may have to jump considerably to cover further taxes before achieving the same bottom line.
With these changes currently being tapered in, it is more important than ever to ensure you are not paying more interest than you need to. It’s not all doom and gloom. Lenders are fighting for Buy to Let business right now, meaning that rates are extremely competitive – it’s time to take advantage of the banks for a change.
Get professional advice:
Whether its mortgage, letting or tax advice, I always urge clients to get professional advice. In almost all cases, the time and money saved by using a professional will more than offset the costs involved. A jack of all trades is a master of none, you can’t expect to know every lenders criteria or their rates, the latest tenancy regulations, be able to market your property, vet your clients all whilst carrying out maintenance, and few understand HMRC property tax rules! A good Mortgage Adviser/Letting Agent/Accountant will always save you time and money – the key to a successful business.
Written By: Ben Adams, Independent Mortgage Adviser
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