Research from Direct Line for Business indicates that over half of new buy-to-let mortgage applicants are unaware of mortgage tax relief alterations. The firm highlights that accidental landlords are most likely to be unaware of the changes in legislation.
A survey of mortgage brokers revealed concerning results. 62% of respondents said they were unaware of changes to mortgage tax relief or the EU’s Mortgage Credit Directive. This is extremely worrying as these changes could impact on their mortgage availability criteria.
This number rose to 71% amongst so called accidental landlords-those who rent out a property having inherited due to unforeseen circumstances. Mortgage advisers suggest that accidental landlords account for 17% of the total new mortgage applications. Overall, buy-to-let mortgage applications have grown by 29%, according to the report.
In addition, just 7% of mortgage advisors said they felt the Mortgage Credit Directive will have a positive impact of buy-to-let mortgage approvals. 59% said they believed it would have a negative effect. Concern is growing that the Mortgage Credit Directive will see landlord mortgage lending seen as consumer lending, thus making accidental landlords subject to more stringent lending criteria.
From next April, changes to mortgage tax relief will see landlords unable to deduct mortgage interest payments before working out their bill. Instead, they will receive a tax credit, equivalent to 20% basic-rate tax on this amount.
71% of accidental landlords unaware of tax changes
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.’
‘With house prices in the UK rising by 7% in the year leading to October 2015 and with the estimated average deposit standing at more than £61,000, it is imperative that landlords are able to maintain a suitable amount of property to house the population of young people saving up to buy their first property or those seeking a temporary stay in a town or city,’ Breton added.