Lenders are continuing to sell buy-to-let mortgages to investors, despite the warnings that landlords may be at risk of losing money once the government’s tax changes are implemented.
Recently announced changes to the way that landlords are taxed on their rental income could mean that some borrowers will end up with a loss at the year end. A number of lenders are moving into the buy-to-let market, offering lower interest rates to attract new custom. However, this may be placing borrowers at risk, in addition to creating a high risk for their own business. The generous deals being offered don’t seem to have taken into account the tax changes, which will be introduced in 2017.
According to one mortgage broker, Simon Collins, it appears that lenders are counting on rents being increased in a short space of time. He added that borrowers were taking on low rate mortgage products without considering the potential impact of future tax changes for buy-to-let customers. The Coventry Building Society commented that counting on house prices and rents being increased was fair. The building society stated that it believed that its customers would continue to generate profit, even after the changes had been fully implemented in 2020.
Consulting with a CeMAP trained mortgage adviser will ensure that landlords are aware that following the introduction of new tax rules, mortgage interest will not be deducted from gross profit before calculating the tax due. Instead, tax will be paid on the whole amount less other allowable expenses.