Landlords in the dark about impending tax hike and lending clamp-down

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.’


8 thoughts on “Landlords in the dark about impending tax hike and lending clamp-down”

  1. george the first says:

    So Google can pay 3%, whilst landlords will be paying tax on losses. The lunatics are running the asylum!

    1. Jive Bunny says:

      They don’t like highly leveraged landlords and are clearly determined to drive them out of the market. I can see it actually.

      Highly leveraged = high risk and what of the 100% and 125% buy to let mortgages? (there are some about). That is a riskless investment for a barraboy, he puts up nothing and if he can’t make the mortgage payments he hands the keys back to the bank/Building Society and loses, er, nothing.

      On the other hand if he makes money on the rent and then again on teh capital appreciation then it’s money for nothing (and yer chicks for free – Dire Straits). Such a situation is bound to attract the spivs with no real incentive to make the proposition work as they don’t have any skin in the game (i.e. they don’t invest any of their personal money).

      It could also be that the Government is clearing ou the chaff who won’t be able to afford higher interest rate payments when/if rates start increasing. Maybe the Government knows something we don’t?

      1. george the first says:

        It doesn’t alter the fact that income tax should be a tax on income, not turnover. If that principle is the new norm, then George will be able to rake in billions from the tax avoiders, on their turnover.

        1. Jive Bunny says:

          Afraid you’ll have to bear it.

          This approach appears to be the new norm exclusively for Buy to Let for the reasons rehearsed above.

          The other option would be forcing financial institutions to behave responsibly lending no more than 70% of asset value. If that was attempted the Government would be accused of unnecessary, intrusive and disruptive intervention, because the “70% asset value” approach would be easily understood by Joe Public. A “20% tax credit”, effectively amounting to a disallowance of 80% of mortgage interest payments against income for tax purposes will not.

          1. george the first says:

            I am not a landlord, but this approach is wrong. I used to be a mortgage broker, many years ago and never came across the BTL mortgages, or indeed the prospective landlords described by you. I must have led a sheltered existence! I agree that a restriction on LTV, would be a much better option coupled with stress testing of interest against rental income. I believe that landlords are now flocking to register themselves as limited companies, to get around this crazy legislation.

          2. Jive Bunny says:

            Interesting how misunderstandings arise. I didn’t say you were a landlord, the comment “you’ll have to bear it” was in response to your clear disaffection with the intended changes regardless of whether you were a land lord or indeed had any connection whatsoever with the industry.

            I’m glad you replied as you forced me to check my…err…”facts”. I now see that the greatest % you can get on a new BTL is 80% LTV so that renders the second and third paragraphs of my first post wrong and irrelevant.

            Whilst it still remains the case that the Government clearly want highly leveraged amateur landlords (the ones who don’t work out they can bypass the regulation by registering themselves as a ltd company) out, I can only guess that this move is more about politics and personal home ownership than anything else (i.e. make life difficult for land lords to encourage them to sell out and allow personal buyers to purchase the houses/flats move in).

          3. george the first says:

            I did not think you had implied that I was landlord. I mentioned it to make clear that I have no axe to grind. I believe that the housing stock being bought by BTL investors would not necessarily be bought by personal buyers, especially in London. The basic problem with housing, is lack of supply, in the locations where people want to live. Rental properties go some way to meeting that demand, for those who do not qualify for a mortgage.

          4. Jive Bunny says:

            “I believe that the housing stock being bought by BTL investors would not necessarily be bought by personal buyers,”

            Who then if the landlord is desperate to get out? Another landlord?

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