New Year starts with new worries over financial viability of buy to let

No fewer than 60 per cent of buy to let investors say they believe they will be hit by forthcoming changes to mortgage interest tax relief and mortgage lending affordability rules. 

A two-week survey of 283 investors conducted by Mortgages for Business reveals that only 29 per cent said they would not be hit by the changes, which come into effect imminently. 

“We are still encouraging landlords who haven’t already taken professional advice on the matter to do so as soon as possible” explains David Whittaker, chief executive at Mortgages for Business.

“Some may find that the new formula will tip them into the next tax bracket leaving them worse off. The new [mortgage interest tax relief] regime starts in April, so there’s not much time left to make strategic decisions and take action” he adds.

From the start of 2017 buy to let lenders have been obliged to tighten their affordability calculations in recognition of the increased tax burden being imposed on landlords borrowing personally. 

The survey found that nine per cent of respondents did not know how the revised affordability calculations would affect how much they could borrow and six per cent were completely unaware of the new guidelines, despite wide media coverage on the topic.

The survey also found that landlords are continuing to move toward incorporation, with 32 per cent of respondents owning at least one property in a limited company, up two per cent on the results of a similar survey in May 2016. 

When asked whether future purchases would be made personally or using a limited company, 54 per cent opted for the just incorporated route and 16 per cent said they would use both. The remainder was split down the middle between those who said they would continue to borrow personally and those who had yet to decide how to proceed. 

Despite a tougher operating environment, the proportion of landlords seeking to expand their portfolios rose to 45 per cent, up from 41 per cent in May 2016. Mortgages for Business says this suggests that most are willing to absorb the increased costs, adapt strategies and remain in the property investment market, which still provides better returns than most alternative asset classes.