Changes to taxes and lending criteria for buy-to-let landlords

The Buy to Let market has been transformed in the last few years. It can still be an enjoyable and profitable business, but there are a range of legal and financial issues that need to be carefully navigated.

Some of the key recent changes are:-

Stamp Duty
2015’s Autumn Statement announced a 3% additional rate of Stamp Duty Land Tax (SDLT) on purchases of additional properties such as buy to lets and second homes with effect from the 1st April 2016. Because stamp duty is tiered (see below table), you will pay a different stamp duty rate on different portions of the property value.

Interest rate relief
Since April 2017, the system of calculating tax bills on rental income has changed, and by April 2020, you won’t be able to deduct all of your mortgage expenses from rental income to reduce your tax bill.
Instead, landlords will be given a new tax credit, which is less generous than the current regime.
The government has decided to phase in the new mortgage interest rules over a four year period. You’ll see the amount of mortgage interest tax relief steadily falling each year:

  • In the 2017-18 tax year, you can claim 75% of your mortgage tax relief
  • In the 2018-19 tax year, you can claim 50% of your mortgage tax relief
  • In the 2019-20 tax year, you can claim 25% of your mortgage tax relief

The table below shows how this will impact on a higher-rate taxpaying landlord receiving £950 rent a month and paying £600 towards their mortgage.

Tax year Proportion of mortgage interest deductible under previous system Proportion of mortgage interest qualifying for 20% tax credit under new system Tax bill Post-tax and mortgage rental income
Prior to April 2017 100% 0% £1,680 £2,520
2017-18 75% 25% £2,040 £2,160
2018-19 50% 50% £2,400 £1,800
2019-20 25% 75% £2,760 £1,440
From April 2020 0% 100% £3,120 £1,080

Lending criteria
Lenders now have much more stringent criteria than they have had in the past. Typically they will seek a 25% deposit and want proof of other income, assets and tax liabilities.

These new criteria not only make it even more difficult to find the right mortgage solution for your specific circumstances but also means you should seriously consider whether Buy to Let is right for you at this time.

We can help you understand your options and how affordable (or not) Buy to Let will be for you.

Not quite sure what you need? Let us try to help save you money, time and find the very best solution on the market for you.

Call 01132 556699

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