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WAYS TO COPE WITHE BUY TO LET CHANGES

By Jeff List

Buy-to-let landlords will no doubt be feeling like the world is collapsing around them following the reduction in tax relief on buy-to-let mortgage interest payments (being implemented gradually from April 2017), the introduction of an additional 3% stamp duty which is now payable on buy-to-let properties (second homes) and harder stresses on rental calculations (as set out by the Prudential Regulation Authority).

The thoughts we are hearing from landlords is that their portfolio no longer looks as profitable, adding property to portfolios in personal names is becoming a costly exercise and they will not be able to borrow to the levels required.

The real problem for landlords exists in the fact that by simply increasing rents to cover the increased taxation and rental stresses will no longer work, many of their tenants will not be able to afford to continue living in the property and this creates the risk of no rent being received.

 

There is light at the end of the tunnel for the landlords and many could consider utilising the following to decrease the risk:

  • Borrow on a longer term fixed rate:Under the new regulations lenders are able to use the pay rate when calculating affordability based on rent received (early repayment charges would need to be considered).
  • Look at reducing the rates being paid on existing lending:Many lenders will consider a pound for pound re-mortgage and use pay rate in the rental assessment (again existing early repayment charges should be considered).
  • Utilise a limited company structure:Landlords should consider seeking advice from a qualified accountant to identify whether there are more tax appropriate vehicles for their buy-to-let purchases. The industry has seen a rise in enquiries in limited company applications looking to benefit from the widely published so called buy-to-let tax loophole.

Opportunities exist for landlords and the buy-to-let market is definitely alive and kicking, you may just need a specialist to assist!