Buy To Let
Landlord? Make sure you’re aware of impending EU rules
Guest Author:
Paloma KubiakAccidental landlords are most at risk of being caught out by the new EU mortgage legislation changes which come into effect from 2017.
New research by Direct Line for Business reveals that 55% of new buy-to-let mortgage applicants are unaware of the impending mortgage tax relief changes.
The survey also revealed that 62% of mortgage applicants were unaware of either the changes to mortgage tax relief or the EU’s Mortgage Credit Directive (MCD) which could affect their ability to secure finance for a property.
This lack of awareness rises to 71% among ‘accidental landlords’, mainly those who rent out property owing to unforeseen circumstances such as being unable to sell or inheriting a home.
What are the changes?
Changes to the mortgage tax relief are set to be phased in from April 2017 with landlords no longer able to deduct mortgage interest payments before calculating their tax bill.
Instead, they’ll get a tax credit equivalent to 20% basic-rate tax on this amount.
Landlords are also set to be hit from April 2016 by stamp duty changes that mean anyone buying a second home or buy-to-let property will pay a 3% surcharge on their stamp duty bill.
The EU’s MCD could see circumstances where landlord mortgage lending will be viewed as “consumer” lending and could be subject to more stringent lending criteria.
Nick Breton, head of Direct Line for Business, said: “The new EU legislation on mortgages coupled with the Government’s increase in buy-to-let taxation could significantly alter the buy-to-let market, so we would encourage any mortgage applicants to think carefully about the new law and how this could impact them as a landlord.”
Top tips for landlords to protect their income
With the new legislation set to be phased in between 2017 and 2020, Direct Line for Business gives the following tips:
Get good insurance cover – as well building and contents, landlord insurance can also cover the landlord’s liability and loss of rent such as a fire or flood. The average rental cost is £739pcm so not having the right cover in place could have a significant impact on your finances, especially if the property’s uninhabitable for a period of time while repairs are taking place.
Secure tenants for less – letting and management agents currently charge between 10-15% of the monthly rent in fees. You could save more than £1,000 per year if you take on the responsibility of finding tenants, making sure you are following all the correct procedures and managing your properties yourself. If you rent a property privately you can also claim back the cost of advertising, credit checking, referencing, deposit protection and professional inventory costs
Make the most of existing tax benefits – Any money spent on keeping a property in a good state of repair is tax deductible, as are all broker and arrangement fees. You can also claim the whole cost of council tax or utility bills that a tenant would pay.
Keep up to date with legislation – It is important to continually keep an eye on the policies affecting landlords to ensure that a property complies with the latest legislative changes. It is also important to consider whether a property is not just affordable in the short-term but in the medium to longer term as often relief is phased out and additional taxes phased in over a number of years.