Investing in Buy to Let Property
There has been a number of changes to legislation affecting the buy to let market recently. Below are details of some of these changes that we think are important to highlight if you are considering investing in property.
Until the changes that came in to affect in April this year landlords could deduct their mortgage interest costs from their income when calculating their tax. Now though, they can only offset 75% of the mortgage interest, and this figure is being gradually reduced to zero by 2020. Instead, landlords will be able to claim a tax credit worth 20% of their mortgage interest
In conjunction with this change we also saw the end of the ‘wear and tear allowance’. Previously, landlords letting furnished homes could deduct 10% of the annual rent from their profits to account for ‘wear and tear’. New rules introduced mean that landlords can only deduct the cost of replacing or repairing household items ‘like-for-like’.
A major extra cost to bear in mind is also the Stamp Duty Surcharge introduced a couple of years ago. This is an extra charge of 3% of the purchase price for all purchases other than your main residence. For example, this means that a buy to let landlord would need to pay an extra £9000 in stamp duty on a property costing £300,000.
Interest rates are still historically very low and arrangement fees are broadly what they have been for many years. Lenders however have made buy to let borrowing tougher for landlords. Much stricter lending criteria for buy to lets has been introduced recently, with lenders increasing their stress test limits, which require landlords to receive much higher levels of rent relative to their mortgage costs.
Before plunging in to the buy to let market for the first time, or adding to your existing portfolio of investment properties, it is worth talking through your options with a qualified expert who will be able to guide you through the potential pitfalls and help you obtain the mortgage most suitable for your needs.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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