More Bad News For Landlords…The Death of The Dabbler?
More bad news for Landlords?
If you are a private landlord looking to expand your portfolio you’d be forgiven for thinking “Why us?” at the moment and it’s about to get worse before it gets better. On top of the recent changes to Stamp Duty and Income Tax, on 1st October 2017 there is a change coming in the way portfolio landlords mortgage applications are to be assessed which will potentially make it more difficult to take out a new Buy to Let mortgage. Here I explain what’s happening.
Why have the Government got it in for me?
Everyone acknowledges that there is a housing shortage in the UK and successive Governments have never properly addressed the issue. We just cannot build enough new homes to cope with the demand.
In my opinion, private Landlords play an important role in providing families with somewhere to live but the Government feels that they are hindering the chances of First Time Buyers getting onto the property ladder and have taken a series of steps to make Buy to Let a less attractive investment.
What’s changed so far?
The first step the Government took was to introduce a Stamp Duty “surcharge” of 3% on all new purchases. This even applies to properties that would normally be under the stamp duty threshold of £125,000. Put simply, if you were to buy a house for investment purposes with a purchase price of £100,000 you would pay £3,000 in stamp duty whereas someone buying the same property with the intention of living there would pay nothing.
Secondly, the Government decided to remove some of the tax advantages attached to buy to let. Whereas up until now you could offset mortgage interest payments against your tax bill, now your rental income is added to your earned income to determine what tax bracket you will fall into. This change is being phased in over a 4 year period but from next year onwards many people, in particularly higher rate taxpayers, will face higher tax bills.
And what’s next?
The Prudential Regulation Authority (PRA) have brought in some added regulation, this kicks in on 1st October 2017. If you own 4 or more mortgaged buy to let properties, you will now be classed as a “portfolio landlord”. They have concerns that because interest rates have been so low for so long it’s going to come as a nasty surprise to some landlords when their mortgage payments inevitably increase in the future.
To put a curb on Landlords over-committing themselves in the buy to let market, the PRA are insisting that mortgage lenders carry out more affordability assessments when this type of applicant wants to make a new investment. Whereas previously it was, generally speaking, sufficient that the projected rental income from the new property would cover the mortgage payment, now your income must be assessed.
You will have to provide information about your other properties to the lender and prove that the rental income covers the mortgage payments on all your portfolio, not just the new one you are buying. This means additional legwork for you and your mortgage broker (who may now be charging you a higher fee for this extra work).
Is Buy to Let still a good investment?
Many Landlords are now setting up Limited companies for their future purchases to make them as tax efficient as possible but even these Landlords will be covered by the new rules. If you are serious about buy to let then you are unlikely to be put off but the “dabbler” or “accidental landlord” who has the idea to rent out their current home to buy a new main residence may well be thinking twice.