With the deadline for filing last year’s accounts on 31stJanuary, landlords will now have a clearer idea of how the changes to mortgageinterest tax relief are going to affect their profitability. For the tax year2017-18 landlords can claim 75 per cent of their mortgage tax relief, reducingto 50 per cent in 2018-19, 25 per cent in 2019-20 and ending up at zero fromApril 2020. Thereafter, landlords will qualify for a 20 per cent tax credit fortheir mortgage interest payments.
This new system will clearly have a significant financial impacton buy-to-let investors, particularly for professional landlords, and may wellpush some into a higher income tax bracket as they will have to declare incomeused to make mortgage payments.
The new system only applies to private landlords – people who owntheir properties as individuals rather than through a business. For this reason,TBMC is seeing a growing interest in limited company buy-to-let mortgages, witharound 25 per cent of all applications being submitted for properties held in acorporate structure. This is true of both experienced portfolio landlords and newcomersto buy-to-let property investment.
However, it’s not a completely straightforward decision to make asincorporating can make taxes more complex. Taxes need to be filed for abusiness and corporation tax is payable on the profits.
Additionally, if a landlord decides to transfer an existing portfolioto a limited company, they would have to pay stamp duty on each property.Limited company mortgages may also be more expensive than those offered toindividuals which could cost more than any tax saving made. Advice from aqualified tax adviser is always recommended for any landlord consideringincorporating for the first time.
As landlords consider the impact of taxes on the profitability oftheir property investments, those who choose to invest in Houses in MultipleOccupation (HMOs), will have some additional concerns to address. The new HMOregulations that came into effect in October 2018 include stipulations aboutminimum rooms sizes for this type of property. These rules may have implicationsfor existing properties and mean that new purchases require some modification beforethey can be let out. This may also impact on the availability of mortgage finance for properties that don't meet the required standards.
It is certainly something for landlords to consider, particularlyif they are purchasing an HMO at auction when completion is normally required within28 days. There are solutions though, most notably short-term finance optionsthat can provide the required funds to carry out any necessary refurbishmentworks or room modifications before remortgaging onto a standard buy-to-letproduct. TBMC has recently expanded its buy-to-let bridging panel to cater forthis type of situation and now has a wide range of different options available.
There was a cooling in the number of mortgage applications for propertypurchases during 2018, but a healthy remortgage market is still apparentalongside the growing interest in short-term finance options. Needless to say,the buy-to-let sector is everchanging and it can be challenging for brokers andlandlords to identify the best product options in the current lending environment.TBMC aims to make the process easier for customers, providing support andsolutions using our experience and expertise in this complex sector.