Buy to let has an uncertain future thanks to tax and mortgage changes, according to mortgage professionals.
Landlords have come under attack from the Bank of England governor Mark Carney and Chancellor George Osborne, who both fear buy to let is undermining the property market.
Osborne is concerned wealthy landlords are outbidding first time buyers for affordable homes, while Carney is worried lenders are relaxing mortgage criteria too much.
To combat the growth of buy to let, which accounts for about 9% of all mortgage lending, Osborne has granted the Bank new powers to cap loan-to-value on borrowing and to order lenders to increase affordability criteria for landlords.
Although the Bank has the powers, they are not yet in use.
“We have to be careful about buy to let and are watching closely and will step in and take action if we have to,” said Carney.
The Mortgage Works, Barclays Bank and several other lenders have already changed rent cover rules in an effort to make buy to let loans harder to get for landlords.
Both these measures have led the Council of Mortgage Lenders – the trade body for the majority of the UK’s buy to let lenders – to downgrade lending forecasts for the next two years.
Lenders say the sector has grown for the past five years, but is likely to standstill for the next two while landlords assess how the lending and tax changes affect their businesses.
“Our view is buy to let is not a market that needs intervention, especially until the effect of recent tax changes is seen and evaluated,” said a CML spokesman.
“We think policy makers need to be careful about unintended consequences that may result from their actions and comments.”
From April 2017, landlords paying higher rate tax will have their mortgage interest relief restricted, lose travel expenses and see changes in the way they can reclaim the cost of furniture and white goods in their properties.
What travel expenses are to be lost? I haven’t heard about this???
The disallowing of landlords’ finance costs (we don’t get a ‘relief’ – that’s just sophistry) – comes in effect from April 2017.
Article edited to reflect 2017, not 2016 (slip of the pen error) thanks.
In respect of travel expenses, the author of the article has responded as copied below.
Re travel expenses…there’s a lot of consultation going on at the moment but this dates back to the Dr Samadian ruling which we have written about before.Basically the Treasury and HMRC are looking to minimise travel expense claims for business and are forcing compliance to laws that have been on the books for years but not really enforced too much. There’s a rewrite going on expected for the next Budget which is likely to ban home to workplace travel for everyone – read ‘landlords going to their buy to lets’ on regular trips. Emergency call outs, viewings etc seem OK, but going to an HMO to cut the grass or collect rents or clean every week will become taboo. also doubling up on letting agent duties is dubious as well ie if the management contract says the letting agent sees tenants in and out, then the landlord is unlikely to win a claim for expenses related to the same activity.