From this week buy-to-let landlords will begin to feel the changes of the new tightening of taxation in the sector. Tax relief on landlords’ mortgage costs will now be restricted to the basic rate of income tax. And, over the next three years, the proportion of their borrowing costs that landlords can offset against tax will reduce down to zero.
In addition to this, landlords are affected by new rules restricting other deductible expenses that they incur from renting property, including reforms limiting tax relief for wear and tear in fully furnished properties. A new ream of restrictions limiting what landlords can offset against tax follows the introduction of higher rates of stamp duty on property purchases by landlords. Since April last year, anyone buying a second home has had to pay 3% on top of the usual rate of stamp duty on a property. So, each investment by a landlord will have a stamp duty bill of at least 3% and as much as 15% of the purchase price, which will vary depending on its cost.
The new tax burdens on landlords coincide with a tightening of regulatory requirements on the buy-to-let sector. This requires Lenders to consider likely future interest rates over a five-year period (unless the loan rate is fixed or capped for five years or more). More specifically lenders have to stress test their lending against an expectation of an increase in buy-to-let mortgage rates of at least two percentage points; and assume a minimum rate of 5.5% even if the stress test of a two-percentage point increase would actually produce a lower rate than that.
In a further tightening of regulatory requirements, firms will, from the end of September this year, also have to apply special underwriting rules to landlords with a portfolio of four or more mortgaged properties. The regulator is suggesting that lending to these landlords is inherently more complex because of the potential problems associated with higher debt totals, more complex cash flows, multiple tenancies and risks of property or geographical concentration.
The coming changes are multi-faceted and complex and investors should therefore ensure that they have received comprehensive advice from certified professionals.
If you have a Buy-To-Let or are considering a property investment, please give Bluebell a call to discuss your needs.
