With the hike in stamp duty looming, landlords must act now or risk getting caught in a backlog of mortgage applications
Private landlords have been dealt a triple whammy by the Chancellor this year.
In July’s Budget he announced proposals to restrict buy-to-let mortgage interest relief to the basic rate for higher-rate tax-paying individuals, to be phased in from April 2017. Then, in October, he confirmed he had given the Bank of England additional powers over buy-to-let mortgages should the Financial Policy Committee feel a credit bubble was developing. This would likely result in the power to affect the interest cover ratio in buy-to-let calculations to protect landlords from future rate rises. Finally, in his Autumn Statement last month, Osborne announced a 3 per cent stamp duty surcharge on buy-to-lets from 1 April 2016.
All three announcements will have a direct effect on how landlords run their property portfolios. However, whereas prior to the Autumn Statement landlords had a modicum of time to determine their strategy, it is clear they need to act now to mitigate the effects of increased taxation and diktats from the FPC.
Landlords must not wait until the New Year to either seek advice, purchase property or transfer existing portfolios into corporate vehicles. Even as early as February could be too late.
Even though we cannot advise, our finance director has devised a spreadsheet to help landlords calculate their future personal tax liabilities and work out whether they might be in a better position if they operated their portfolio using a limited company.
The spreadsheet also factors in the 3 per cent stamp duty surcharge if landlords select an incorporation date after 31 March 2016. Of course, this spreadsheet does not replace professional advice but it does help to point landlords in the right direction.
Brokers can expect a sharp increase in business from those landlords who do seek professional advice. However, it is likely that an increase in demand will lead to delays along the line. Trade press reports already predict that surveyors and solicitors will be swamped. So too will buy-to-let lenders, particularly those offering mortgages to limited companies.
Bearing in mind the average processing time on a buy-to-let mortgage from application to completion is six to eight weeks, it is important to hammer home to landlord clients the need to act quickly to avoid being caught up in processing queues. Time is short to meet the 31 March deadline.
David Whittaker is managing director at Mortgages for Business