At John Charcol we've been looking at the BTL market and how these changes are likely to affect the sector (can I still bank on buy to let) and the short answer to the question above is, yes it is! But, now is the time to get serious, get to grips with your current situation, and assess what your long-term goals are.
What do you need to know?
We've already seen a number of changes impact the BTL market, including the 3% stamp duty surcharge, rate and the abolition of the wear and tear allowance (read our full guide to these changes here), and the bad news is that the full implication of the regulatory crackdown on the buy to let market are yet to be felt.
What changes are upcoming?
There are three things that you need to be aware of:
1. Following on from the Prudential Regulatory Authority (PRA) consultation that recommended buy to let rental income should cover mortgage repayments based on a minimum stress rate of 5.5% most lenders have already started the process of moving their stress rates, despite the January 1st deadline to do so. In addition, the major lenders are also moving from their current requirement that the rental income should cover 125% of the mortgage, to 145% of the monthly payment. The main exception to these new requirements are that longer term deals, such as 5 year fixed rates, can have the rental cover worked out on the pay rate, rather than the PRA's 5.5% stress rate. We fully expect the remainder major lenders to quickly follow suit meaning that taking out a new, or remortgaging an existing BTL property will become much more difficult.
2. The PRA also ruled that from 1st October 2017, any BTL landlords with 4 or more properties, were to be considered "portfolio landlords" and that these borrowers will require specialist underwriting. This has led to many lenders jumping the gun and moving to cap the number of BTL's a borrower can have across all lending to just 3.
3. On top of that tax changes that are being phased in over 4 years, commencing in April 2017 that will gradually restrict the tax relief all landlords receive to the basic rate of 20%. That means that from April 2020, landlords will no longer be able to deduct the cost of their mortgage interest from their rental income when calculating their taxable profit. In short the profit margin for all mortgaged landlords will be under pressure. At best your profit margin could be severely reduced, at worst you could find yourself in a situation where it's completely wiped out by the incoming tax changes.
So, what can you do?
Well firstly, it's time to get the best advice. If you own a buy to let property with a mortgage and haven't spoken to a mortgage broker, an accountant or a tax specialist, then now is the time to act and get the expert advice and guidance you need. These experts can help you take stock and assess if now is the right time to:
1. Remortgage: The choice of mortgage product has never been so key. By acting now you can take advantage of record low rates, also look to maximise your borrowing.
2. Reassess your portfolio: If you own several buy-to-let properties, it may make financial sense for you to sell one in order to reduce your borrowing across your portfolio.
3. Ensure you are tax efficient: You should speak with your tax adviser, or we can recommend one to you who can review whether you are making the most of your allowances.
4. Consider becoming a company: With corporation tax set to fall to 19% in 2017 and 18% in 2020 our partners can look at your investment and see if you could benefit from converting to a company and offset your costs against your rental income.
To get a free review of your buy to let mortgage or property portfolio call us now on 0344 346 3672 or make an enquiry here