What’s happening in the buy-to-let market?
Many will welcome April, bringing sunnier weather and longer days in its wake—but for landlords, a new tax year brings the onset of another round of tax changes for buy-to-let mortgages.
Historically, landlords only paid income tax on net rental income. This meant landlords were able to subtract the cost of the interest they paid on their mortgage. This is even more significant than it might first sound, because buy-to-let landlords have also benefitted from the availability of interest-only mortgages, whereas residential property owners have typically been required to repay capital as well as interest. Essentially, this meant landlords could subtract the entirety of their mortgage repayments when calculating their tax bill.
This is understandably a drastic change, so the changes have been phased in over four years, beginning in April 2017. Now, from April 2018-19, landlords can claim 50% of your mortgage tax relief. This will decrease again in the 2019-20 year to being able to claim 25% of your mortgage tax relief, until finally diminishing to no tax relief in the year 2020.
Landlords will receive a 20% tax credit, allowing them to deduct 20% of their interest from their final tax bill, but most will still face a significant increase. Some landlords will even be pushed into a higher-rate taxpayer.
This is only applicable to private landlords, not those who own property in a company—but mortgage rates for properties owned in a structure can be more expensive, so those thinking of swapping the ownership of their properties may find themselves caught out either way.
Mortgaged landlords have typically done very well over the last decade, but it’s become clear that times are changing, as tax reforms make it harder to turn a profit. One report has shown the buy-to-let market is in decline in terms of the number of mortgages issued, with a five percent decrease from the previous year.
Ultimately, there’s no denying the market is a much more challenging environment than it has been in recent years. The most important thing to do now is to take the right advice and use a broker who can get you the best possible rate for your mortgage, minimising the repayments you have to make.
Written by: Harry Derrick – MORTGAGE BROKER
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