Mortgages

Majority to be affected by stricter BTL rules

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3rd January 2017
"It’s certainly been a tough 18 months or so for landlords, so it’s encouraging to learn that the majority are getting to grips with changes that will dramatically alter the way they operate."

The majority of landlords say they will be affected by the forthcoming changes to both income tax relief and stricter mortgage affordability checks.

From 1st January 2017, buy to let lenders have been obliged to tighten their affordability calculations in recognition of the increased tax burden being imposed on landlords borrowing personally.

The survey, conducted by Mortgages for Business, reveals that although 60% of respondents felt that they would be directly affected by income tax relief changes, 29% said they wouldn’t. It is thought that these landlords are predominantly likely to be a mix of basic rate income tax payers and landlords who operate their portfolios through limited company vehicles which are subject to corporation tax.

Worryingly. 9% of respondents did not know how the revised affordability calculations would affect how much they could borrow and 6% were completely unaware of the new guidelines, despite wide media coverage on the topic.

Despite a tougher operating environment, the proportion of landlords seeking to expand their portfolios rose to 45%, up from 41% in May 2016.

Landlords are continuing to move toward incorporation, with 32% of respondents owning at least one property in a limited company, up 2% on May 2016.

When asked whether future purchases would be made personally or using a limited company, 54% opted for the just incorporated route and 16% said they would use both. The remainder was split down the middle between those who said they would continue to borrow personally and those who had yet to decide how to proceed. These figures correlate well with our Limited Company Buy to Let Index, which in Q3 2016 showed that 63% of all new BTL mortgage applications for purchases were made by landlords using corporate vehicles.

Five year fixed rate mortgages were found to be the most popular product type over all with 34% of respondents expressing a preference for this category of loan.

David Whittaker, CEO at Mortgages for Business said: “The percentages feel about right for the market in general and it’s certainly been a tough 18 months or so for landlords, so it’s encouraging to learn that the majority are getting to grips with changes that will dramatically alter the way they operate.

“We are still encouraging landlords who haven’t already taken professional advice on the matter to do so ASAP, as some may find that the new formula will tip them into the next tax bracket leaving them worse off. The new regime starts in April, so there’s not much time left to make strategic decisions and take action.”

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