Buy to let investors or anyone considering starting a buy to let property portfolio, need to be aware of a few big changes currently being imposed by the government and the Prudential Regulation Authority.
Over the past two years, we have already seen clamp downs on affordability, mortgage interest tax relief and a stamp duty hike on second homes.
Below we look at the two most pertinent changes which landlords need to consider now to ensure they can afford to continue to run their buy to let investments from September and beyond.
One of the key decisions landlords need to consider at the moment is the best ownership structure for their properties. Owning the properties in single, joint or a limited company name, now has a huge weighting on the level of tax landlords will pay.
For example, following the mortgage interest tax relief cuts introduced in April this year, higher-rate taxpayers will no longer be able to claim back 45% of the mortgage interest. In addition to this, both lower and higher-rate tax payers will not be able to offset all of their mortgage interest against the rental income before calculating the tax due. Both of these changes will make the cost of running the properties considerably higher.
Those holding properties in a limited company name will be unaffected by a number of the changes coming in to play this year. For example, the mortgage interest for buy to lets in a limited company name will remain tax deductible and the corporate tax rate is a flat 20%, falling to 17% in the next five years. In addition to this, limited companies will not be affected by the new affordability stress test changes, meaning lenders can keep their rental calculation at 125%.
These new tax implications for landlords holding properties in sole or joint names are causing some to move their properties into a limited company name. We would like to stress that this is not the best option for every landlord and we do suggest that you seek advice from a reputable Tax Adviser before making a decision. If you do decide that a limited company ownership structure is the best option for you, though, then Doris & Vi can assist you restructuring your portfolio. As whole of market Mortgage Advisers, we can access the lowest rates in the market and offer you a dedicated and experienced Case Owner who will walk you through the entire process.
Stricter Affordability Assessments for Portfolio Landlords
From September 30th 2017, a regulatory change will be introduced that will affect the way lenders underwrite portfolio buy to let business. Key factors in the assessments will include:
- Treating anyone with four or more buy to let properties as a portfolio landlord.
- Tougher affordability checks which will include landlords needing to submit more detailed supporting information, such as business plans, cash flow forecasts, bank statements, SA302s, tax returns, income and expenditure sheets etc.
- Lenders will need to assess background portfolios to ensure landlords aren’t over-committed, even for straightforward refinances.
From October onwards, the adjustments to procedures will no doubt cause a slowdown in the length of time it takes lenders to process applications as everyone adapts to the new rules. Things will eventually calm but the first few months will definitely be unsettled and some lenders may decide to put a temporary hold on lending to portfolio landlords whilst they cement their process.
If you do have four or more buy to let properties, then we would suggest calling our Mortgage Advisers now to review your current portfolio. Until 30th September 2017, we can continue to offer lender’s current criteria and will provide valuable advice to ensure you can continue to operate profitable buy to let investments.
Here to Help
If you are a buy to let investor, then contact our Mortgage Advisers now to discuss the changes and your current buy to let mortgage products.