As a further blow to landlords, the Government has announced it will be phasing out higher rate tax relief on mortgage interest paid on residential investment properties.
A landlord is entitled to claim tax relief on the interest he pays on any mortgage he has on a Buy-To-Let property. Currently that tax relief will be at the Landlord’s highest marginal rate of tax. So if he is a 40% taxpayer, he can claim 40% tax relief on the mortgage interest he pays. From April 2017 over a four year period the Government is changing this so eventually any tax relief will be limited to the 20% level. Not only is this a disadvantage for those landlords paying higher rate tax, it is also starting to affect how lenders will do their affordability calculations. These calculations are based on the expected rental income from the investment property. The lenders are concerned that the change the Government has announced might make it more difficult for some landlords to meet their mortgage payments. Therefore some lenders are tweaking their affordability calculations with the result that they may lend somewhat less than before for a given level of rental income.
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