Thanks to the aggressive new tax regime which has thrown many amateur landlords into a state of confusion, many mortgage products are currently on the market that will guarantee landlords are locked into a permanent state of loss-making on their ‘investment’.
Landlords will need to be more careful than ever when acquiring new properties, or remortgaging their existing commitments and consider taking professional advice from mortgage advisers as well as accountants as to the best vehicles in which to hold their assets as holding property outside a Limited Company will no longer allow investors to offset their mortgage interest.
The Telegraph is highly critical of the moves and provides an illustration involving a £240,000 property where the new tax regime, and a currently available deal would push the borrower into a loss of £480 per annum.
While they rightly point out that, in the near term, capital appreciation or rent increases may be insufficient to offset the new tax, it’s important to note that many experienced landlords have been willing to take a longer view on their positions and that might partly be driving the continued demand for those products. In recent times we’ve seen products with a fee structure, and aggressive level of minimum rental cover required that were certainly not profitable on the ‘all things equal’ basis used in the example, but which would have been profitable in some regions given the property price movements.
Lenders selling direct to customers will need to be careful that they fully discuss, or at least recommend professional advice from an accountant is sought about, the new tax regime so that they aren’t caught out by future claims of having mis-sold products. While the buy to let market is relatively lightly regulated compared to much of the consumer finance market, the appetite for tighter regulation is certainly there at the moment throughout the EU.