In the Budget of 2015, the Chancellor, George Osborne, made an announcement that rocked the buy to let property investment market to the core. Tax relief for residential landlords was changing. A Landlord’s ability to claim finance costs against rental income was being reduced in a bid to make buy to let property investment a less attractive proposition. It was one of three changes aimed at cooling the market, thus making more properties available for first time buyers
It certainly did not go down at all well, with the importance of the role of private landlords in modern society being ignored by some.
The mortgage interest changes were implemented from 6th April 2017 and are being phased in over 4 years. We are now in the 3rd year.
Certainly, for higher rate tax-payers it means that they are paying more tax and it has left many of them wondering if it’s worth staying in buy to let property investment.
The other two key changes were:
- the 3% increase in the marginal rate of Stamp Duty (SDLT) on any second home or investment property, including holiday let investment properties despite their qualification as a business.
- the introduction of the Prudential Regulation Authority Buy-to-Let Underwriting Standards, which covers issues such as affordability and defines the “portfolio landlord”.
Landlords, especially higher rate tax-payers, are now being encouraged to put new properties into a corporate structure to get around the mortgage interest problem. However, HMRC classes investment in buy to let property as “investment”, so it is possible that they could challenge the legitimacy of using a corporate vehicle to gain tax relief.
However, buy to let investors are not easily derailed and after all, most stayed invested throughout the recent recession.
What we have seen since 2015 is the mortgage industry adapting to a new era of the “professional landlord”, with many more lenders offering innovative mortgage products to support them. Examples are:
- Limited company buy to let products, at reasonable cost
- “ bridge to Let” products, enabling investors to purchase and renovate uninhabitable properties
- low cost HMO buy to let mortgage products
- buy to let products that allow multiple self-contained units on one title
- mixed use buy to lets, i.e. flats above shops, on one title
The industry will adapt and survive. There is no alternative, what ever you may hear in the news right now.