BUY-TO-LET MORTGAGES

Generally Buy-To-Let (BTL) mortgages have already allowed lending well into retirement as the income to support the mortgage usually comes from the rental income only.

This age tolerance has become even more flexible with some lenders having no maximum age on when the mortgage has to be repaid. Do remember though that many BTL lenders have minimum initial income requirements. Contact us and we can make enquiries for you.

Do remember that most lenders also provide options to switch your mortgage product to a lower rate.

MORE FIRST-TIME BUYERS

While the amount of Buy-To-Let buying has gone down, there has been a definite increase in first-time buyers looking to get onto the property ladder. Lenders are looking to keep interest rates as

low as possible to continue to attract these new buyers, and are trying to be as flexible as they can in finding solutions such as involving parents in the transactions in one way or another. This can be by means of providing a deposit or acting as guarantor or even going onto the mortgage itself.

BUY-TO LET SLOWING DOWN

The Government’s actions of increasing the Stamp Duty on buying a second property, and also making letting less attractive tax-wise, has slowed the property market down. Those looking to start or continue letting need to become familiar with the new rules so as to make sure the activity remains profitable.

STRICTER RULES FOR BUY-TO-LET BORROWING

New regulations have just come into force which require lenders to deal differently with those owning 4 or more residential rental properties. This level of landlord will now have to submit full details of their portfolio including values and rental incomes for all of the properties owned, and these must fit into the new affordability calculations.

Those who own fewer than 4 residential rental properties will be able to remortgage properties and increase their portfolio up to the level of 4 much more simply. This does look to be yet a further effort by the Government to disadvantage those seeking to build a large property portfolio.

CHANGES AHEAD!

The Governor of the Bank of England has been preparing us for an increase in interest rates in the near future. That and the uncertainty with the BREXIT negotiations are reasons

for reviewing one’s finances sooner rather than later. Mortgage and Lifetime Mortgage interest rates will both be influenced by any increase announced by the Bank of England and, in fact, some lenders have already started making adjustments.

The Inertia Tax!

Those with residential mortgages that stay on their lenders’ Standard Variable Rate are effectively suffering a voluntary tax by not taking advantage of their lender’s special deals. Shifting over to the lender’s special deals, such as a fixed rate for two or three years, can save hundreds or even thousands of pounds over those couple of years. Simply contact your lender and ask them what is

available. This same principle applies for those who have buy-to-let mortgages on investment properties.

USING OUR EXPERIENCE AND EXPERTISE

“Service is, as ever, unbelievable.”

Mr CE of Crawley

“Very professional and helpful service.”

Mr JG of East Grinstead

USING OUR EXPERIENCE AND EXPERTISE

“Thank you so much for all your help with these pensions.

We couldn’t have done it without you.”

Mr & Mrs KC of West Sussex

“Friendly and accurate advice.”

Mr AO of East Sussex

MORTGAGES AND REMORTGAGES – LOOKING GOOD!

Residential mortgage rates remain very low although the most recent hike in inflation can be taken as a reminder that rates can go up.

It is probably a very good time to lock into a fixed interest rate for 5 years or so which can be as low as 2.0%. Many lenders are also working on making borrowing easier for older borrowers. We can provide rapid assessments of what rates may be available for your circumstances.

The market in purchasing buy-to-let properties has slowed following the hefty increases in Stamp Duty when you buy a second/investment property, and also due to the reduction in tax relief on mortgage interest for higher rate taxpayers. However, rates are also good in this sector for those reaching the end of a mortgage term on their rental property and looking to replace the existing mortgage.

ATTACKS ON THE BUY-TO-LET MARKET!

Over the past 12 months there has been a deliberate effort by the Government to make buying properties to let less attractive.

First, there was the announcement that the Stamp Duty payable on second properties would be 3.0% more than that payable on residential properties. That is a very significant amount of money. Then there is the progressive reducing of tax advantages on the interest on mortgages on let properties – ultimately dropping from as much as 45% for Additional Rate Taxpayers down to a level of 20% for all. This effectively raises the costs for many landlords who are higher rate taxpayers.

There are further changes. In 2017 we will see the affordability calculations for Buy-To-Let mortgages significantly increased – the bottom line being that the amount of mortgage available based on the monthly rental, will go down from the levels they have been. This could make buying and remortgaging more difficult. Do contact us if you need any remortgage calculations. All in all the

Government may be shooting itself in the foot with these actions as the result could be a stagnant housing market with reduced levels of house building and sales.

MORTGAGE MARKET

Those looking to buy in the near future may benefit from the bit of a slump that has occurred following the new rules affecting Buy-to-Let properties. There was a surge in the first three months with the deadline in the higher Stamp Duty charges for Buy-to-Lets that came into force on the 6th of April. However, there is now the beginning of a slump so it is worth doing some tough negotiating.

STAMP DUTY ON PROPERTY PURCHASE

(Note: There is a 3% increase on all bands for Buy-To-Let/Second Property)

                   

                             Residential             Second Property/Buy to Let

£0 to £125,000                  0%                                 3% (0% up to £40,000)

£125,001 to £250,000       2%                                 5%

£250,001 to £925,000       5%                                 8%

£925,001 to £1,500,000   10%                              13%

£1,500,001 plus               15%                              18%

Note: The Chancellor did also announce some changes to Stamp Duty on purchases of commercial property.

Contact us if you need details.

TAX MATTERS – AFTER APRIL 2016!

1. The Personal Tax Allowance (what you can earn before you pay any tax) goes up from £10,600 to £11,000.

2. The Basic Rate Tax Band goes up from £31,785 to £32,000. This means that from the 6th of April, with the first £11,000 earned being subject to no tax, you will not start paying £40,000 tax on earnings until they exceed £43,000. This is marginally better than the previous year.

3. We understand that the annual ISA allowance will remain the same at £15,240. The new Help to Buy ISA will become available from the 6th of April. This is for First Time Buyers only. For full details search “Help To Buy ISA” at www.gov.uk.

4. From 6 April 2016 the Rent-A-Room relief rises from £4,250 per annum to £7,500. That is a very attractive tax-free source of income for those with spare rooms they can let.

5. If you have saved in a deposit account which is not an ISA, you will be familiar with the fact that the Bank or Building Society would automatically deduct 20% of the interest as tax (unless you were a non-taxpayer and filled out the appropriate form). This will change from next April. Deductions will no longer be made. And, in fact, there is a new Personal Savings Tax Allowance which will mean that for a basic rate taxpayer, the first £1000 he earns in savings interest will be tax-free. For higher-rate taxpayers this allowance reduces to £500 per annum.

AND EVEN MORE PRESSURE ON BUY-TO-LETS!

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.

 

THE AUTUMN STATEMENT!

There were not a great many new announcements in the Chancellor’s December Statement.

Many of the changes that will take place in 2016 had already been announced earlier.
Perhaps the biggest surprise was the Government’s strategy to limit the number of properties being taken up by Landlords by announcing an increase in Stamp Duty on second properties and investment properties by 3% (!) from the 6th of April. In our view this will just fuel a four month property boom as landlords buy before the deadline!

To illustrate the effect of this extra 3% tax, we can look at the Stamp Duty on Buy-to-Lets before and after the 5th of April 2016. Our understanding of the application of the Stamp Duty from 6 April looks like this:

Buy-To-Let                        Buy-To-Let                         Buy-To Let

Purchase Price                   Stamp Duty Now                 Stamp Duty  from 6 April

£125,000                            nil                                        3% = £3,750

£200,000                            £1,500                                 5% = £7,500

£275,000                            £3,750                                 8% = £12,000  (average family home)

£510,000                            £15,500                               8% = £30,800

Note: This increase in Stamp Duty will not apply to purchases of caravans, mobile homes or houseboats.

WHEN LET-TO-BUY MAY BE BETTER THAN BUY-TO-LET!

If you live in a property and then sell it, generally you will pay no tax on any profit you make. And normally, when you buy a property and let it out, you will pay tax on all the profit you make on the sale. (Note: there are some exceptions in both case) However, if you let out a property you have lived in, there are tax reliefs that could save you a great deal of tax on your profits when you come to sell it. When you sell a property you have lived in, even if you are not living in it currently, you can claim tax relief for the time you did live in it and for the last 18 months before you sell it. Additionally you can claim “Letting Relief” of up to £40,000 for the period of time it was let. So if you are planning to invest in additional properties, it is worth knowing how these tax advantages could make Let-to-Buy an attractive option.

MORTGAGES AND BUY-TO-LETS

Mortgage rates remain extremely low – probably the lowest they have ever been. It is a good time to take advantage of fixing an interest rate for the next 4 or 5 years. Even the costs of changing lenders have been reduced. Call us if you would like a quote.

The July Budget announced a change in the taxation of Buy-To-Let mortgages. Up to now a landlord could obtain tax relief on all the interest paid on his buy-to-let mortgages, and if he were a higher rate taxpayer, that tax relief could be up to 40% or even 45% for the very wealth The Budget announcement confirmed that from the 6th of April next year, this tax relief would be limited to 20% (Basic Rate Tax) even if a landlord is a higher rate taxpayer. The Government is hoping this will result in fewer properties being purchased by landlords

and cool the market down a bit.

Those aged 55 and older may want to look at their Lifetime Mortgage options which would permit interest-only payment arrangements indefinitely.

WHY USE US?

We have over 30 years of experience with financial matters which has given us a great deal of expertise and know-how.

We seek to provide an efficient, professional and friendly service to all our clients.

Here are a few recent client comments:

“You are trustworthy and professional with clear explanations given. Thanks for your patience.”

– Mr JG of East Grinstead

“Thank you for your help and attention, excellent as always.”

– Mrs CC of Leicestershire

“Ever grateful for your prompt and helpful advice.”

 – Professor BHW of Oxford

“I needed someone I could trust.”
– Mr GN of Turners Hill,West Sussex


“That’s brilliant. Can’t believe how quick you got this (mortgage offer) through.”
– TM and DW of Crawley, West Sussex

BETTER IN A BUY-TO-LET?

It is expected that many people may want to empty their pension funds and put the proceeds into one or more residential buy-to-let properties. This may suit many, but there are some factors to take into

account:
• How much tax will have to be paid on the money withdrawn (if in excess of the 25% tax-free sum);

• The amount of Stamp Duty to pay (on properties costing in excess of £125,000);

• The legal fees and other costs to be paid to purchase a property;

• The fact that rental income is potentially liable to tax;

• That there may be Capital Gains Tax to be paid on the eventual sale of the property.

This is not intended to be a statement that no-one should use their pension fund to invest in a Buy-to-Let, but it is meant to ensure that anyone who intends to do so balances the desire to acquire a property with the advantages of keeping the money in a pension (tax free increase in value; ability to pass to beneficiaries free of tax; ability to access income from the pension fund instantly rather than suffering the delays in releasing the value locked up in a property).

EFFECTS OF THE MMR (Mortgage Market Review)

The Mortgage Market Review has resulted in new rules being introduced which have put extra requirements on lenders from April 2014. This is already resulting in major slows in processing applications and also is resulting in many lenders starting to raise interest rates on the new mortgages they are offering because of the extra costs resulting from having to implement these rules.

What we are also seeing is generally a tightening up in lending. Cases which would have gone through smoothly in previous years are hitting major obstacles which, in some cases, have resulted in the mortgage being declined. There is also an even greater reluctance to provide new interest only

mortgages. This is bound to impact on the many who still have an interest-only mortgage which is reaching its end.

We will be happy to assist wherever possible with new mortgage arrangements and we are still recommending that those with mortgages on the lender’s standard variable rate should seriously

consider moving to a rate fixed for 3 to 5 years, or longer. We are of the view that interest rates are likely to start creeping up within the next year or so.