Once again the buy-to-let sector is in the spotlight as the first round of mortgage interest tax relief cuts were applied last week.
The phased withdrawal of mortgage interest relief – introduced by the Government with the alleged aim of putting off amateur landlords and freeing up the housing market for first-time buyers – will take place over four years.
By April 2020, landlords will no longer be able to claim any mortgage interest tax relief and will pay tax on all of their income, before claiming a tax reduction of 20 per cent. The measures were announced in the 2015 Emergency Budget.
Of course, the BTL sector has had to contend with numerous other changes in the past year or so, including the hike in stamp duty and the tougher underwriting standards brought in by the PRA that make it harder to get approval for mortgages.
Even working in the industry it’s not easy to get one’s head around all the changes to legislation faced by landlords. Small wonder, then, that a recent YouGov survey found that a third of 925 landlords questioned weren’t aware of the mortgage interest relief changes coming in.
Although a recent smaller survey by Paragon, of 203 residential landlords,
found that knowledge was improving – with 78 per cent aware of the changes made in Q1 2017, up from 71 per cent in the previous quarter – there is still considerable ignorance in the market.
Then there are those who do understand the changes and are looking to move to limited company borrowing to avoid some of the tax changes applied in other forms of BTL. But that presents its own challenges with not many lenders currently offering limited company products. Plus incorporation is far from a simple business and isn’t right for everyone.
It’s undoubtedly a trying time for landlords, and for everyone working in the BTL sector.
Of course, the onus here is on brokers to ensure that they are fully informed on all of these changes, so that they can either pass on this knowledge to clients or point them towards a suitable tax adviser should tax issues arise. This should make adapting to the many changes as smooth a ride as possible.
Now is the time for brokers to shine.