5th February 2016
Two-thirds of buy-to-letters are unaware of changes to mortgage tax relief and EU rules that could see them frozen out of the mortgage market.
Research by Direct Line for Business shows 55% of new buy-to-let mortgage applicants are unaware of the mortgage tax relief changes, with accidental landlords the least likely to be aware of the new regulations.
Mortgage tax relief is being cut for higher earners following the last Budget, reducing the profit that can be made on renting out property. Landlords are also having to contend with the EU’s Mortgage Credit Directive (MCD) that could affect their ability to secure a mortgage.
However, landlords are in the dark about these changes. A total of 62% of those surveyed were unaware of either the changes to mortgage tax relief or the MCD, with the figure increasing to 71% for accidental landlords, who are renting out a property because they are unable to sell it or because they have inherited a home.
Accidental landlords account for one in six of new mortgage applications and overall buy-to-let mortgage applications have grown 29% in the past year.
Only 7% of mortgage advisers believe the MCD will have a positive impact on buy-to-let mortgage approvals, compared with 59% who believe it will have a negative impact.
Under the MCD, landlord mortgage lending will be viewed as consumer lending and could be 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. These changes will be phased in between 2017 and 2020.
Changes to mortgage tax relief will be phased in from April 2017 and landlords will no longer be able to deduct mortgage interest payments before calculating their tax bill. Instead they will get a tax credit of 20% basic-rate on this amount.
From April this year, landlords will be hit by extra stamp duty when buying a people, paying a 3% surcharge.
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.’