Many UK landlords unaware of new mortgage legislation, research suggests
Accidental landlords in the UK are most at risk of being caught out by new European Union mortgage legislation, new research suggests.
Some 55% buy to let mortgage applicants are unaware of the impending changes to mortgage law and accidental landlords, those who did not intentionally set out to rent out a property, are least likely to know about these regulatory changes.
The research by landlord insurance provider Direct Line for Business amongst mortgage brokers also reveals that 62%of applicants were unaware of either the changes to mortgage tax relief or the EU's Mortgage Credit Directive (MCD) and therefore changes which could impact their ability to secure a mortgage.
This lack of awareness rises to 71% amongst 'accidental landlords', namely those who rent out property due to unforeseen circumstances such as being unable to sell, or inheriting a home.
Mortgage advisers estimate that accidental landlords account for 17% of new mortgage applications, with overall buy to let mortgage applications growing by 29% in the past year.
The research also shows that only 7% of mortgage advisers believe that the MCD will have a positive impact on approvals of buy to let mortgage applications while 59% expect it to have a negative impact.
The EU's MCD could see circumstances where landlord mortgage lending will be viewed as ‘consumer’ lending and therefore could be subject to more stringent lending criteria. Accidental landlords with one or two rental properties may not be able to pass the expected new affordability tests.
Changes to the mortgage tax relief are set to be phased in from April 2017 with landlords no longer able to deduct mortgage interest payments before calculating their tax bill. They will instead get a tax credit equivalent to 20% basic rate tax on this amount. Landlords are also now paying a 3% surcharge on stamp duty.
‘The new EU legislation on mortgages coupled with the Government's increase in buy to let taxation could significantly alter the buy to let market, so we would encourage any mortgage applicants to think carefully about the new law and how this could impact them as a landlord,’ said Nick Breton, head of Direct Line for Business .
‘With house prices in the UK rising by 7% in the year leading to October 20152, and with the estimated average deposit standing at more than £61,000, it is imperative that landlords are able to maintain a suitable amount of property to house the population of young people saving up to buy their first property, or those seeking a temporary stay in a town or city,’ he added.
With the new legislation set to be phased in between 2017 and 2020, Direct Line for Business is providing landlords looking to protect their income with suggestions. It says that as letting and management agents currently charge between 10% and 15% of the monthly rent in fees those with the time and who are prepared to take on the responsibility of managing their properties could save more than £1,000 per year.
It points out that by renting a property privately a landlord can also claim back the cost of advertising, credit checking, referencing, deposit protection and professional inventory costs and they should make the most of existing tax benefits as any money spent on keeping a property in a good state of repair is tax deductible, as are all broker and arrangement fees.
Landlords can also claim the whole cost of council tax or utility bills that a tenant would pay but it is essential that those going it alone should keep up to date with legislation to ensure that a property complies with the latest legislative changes.
It is also important to consider whether a property is not just affordable in the short term but in the medium to longer term as often relief is phased out and additional taxes phased in over a number of years.