Many landlords, particularly small-scale investors such as accidental landlords, may find themselves unable to pass these more stringent affordability tests.
Upcoming changes from the UK government, notably the loss of mortgage rate tax relief in favour of a tax credit equivalent to the basic 20% rate, could further impact the viability of many buy-to-let investments. According to Direct Line’s research, 62% of applicants for buy-to-let mortgages were not aware of either the MCD reforms or the changes to tax relief for mortgage interest.
Buy-to-let mortgage applications are rising rapidly, with the number of new applications rising by 29% in the past year. Roughly 17% of all applications come from those who would be considered accidental landlords. However, many of these applicants could be vulnerable to the upcoming changes, which could harm their ability to qualify for a mortgage or significantly reduce the profits they can make from their investments.
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Direct Line for Business head Nick Breton 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.”
Direct Line for Business provided a number of suggestions for landlords seeking to protect their income as the changes to mortgage rules roll out. For example, it suggested that landlords who have the time and are willing to put in the effort should manage their properties directly instead of using an agent. This would lead to significant savings in agency fees, and also allow costs such as advertising a property, protecting deposits, and conducting the necessary checks on prospective tenants to be offset against tax.
With property prices rising rapidly, Breton said, “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.”
This article was provided by UK property investment specialists, Hopwood House.