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Landlords Urged to Find Cheaper Mortgage Deals

cheaper mortgage deals

Landlords are being urged to find cheaper mortgage deals in a bid to protect their investment before new tax hikes begin to bite from April.

That’s when the rate tax is calculated on a landlord’s buy to let income will change and their profitability will be hit because they will be unable to deduct all of their mortgage interest costs from their rental income.

The mortgage relief is being reduced in phases to 20% by 2020.

Currently, a landlord who receives £10,000 every year in rental income will be paying mortgage interest cost of £8,000 and taxed on £2,000 of profits.

The actual tax paid depends on whether the landlord is a basic or higher rate taxpayer and for those in the higher tax band, their tax bill will be £800.

However, under the new tax system, the landlord will see their £10,000 of rental income being classed as their taxable income while receiving 20% of relief on their £8,000 mortgage interest which will make their tax bill £2,400 which is three times its current rate.

Landlords are being urged to look closely at their costs

Now landlords are being urged to look closely at their costs and help reduce them by seeking out a cheaper mortgage, if necessary.

The call comes from London and Country Mortgages’ David Hollingworth who says that landlords are being attacked and will be paying more in tax while facing tighter lending criteria from lenders.

He said: “For landlords, it’s important that they keep their costs under review. We are seeing more property investors who want to take advantage of low mortgage rates.”

Indeed, mortgage rates in the UK are currently lower than they were 12 months ago and there’s a wide variety of choice from buy to let mortgage lenders.

Increasing numbers of landlords are already looking at switching mortgage deals with Ray Boulger who works at John Charcol, a mortgage broker, saying borrowers are increasingly looking at five-year fixed rate for their security.

If a landlord has a retention penalty on their current mortgage

He explained that even if a landlord has a redemption penalty on their current mortgage it might be considering paying this to access a cheaper product.

Despite the crackdown on the profits being made by property investors, there is still strong tenant demand for private rented accommodation which will rise in 2017.

Those are the findings published in a market report by Paragon Mortgages who also point out that a year ago one in four landlords said they were planning to sell some or all of their portfolio because of the tax changes.

However, it looks like the figure of landlords looking to leave the private rented sector is falling with just 17% of landlords now say they will sell up and the number looking to invest has risen slightly.


About S Thompson

Simon Thompson is Chairman of the Landlord Syndicate and CEO / Co Founder of Accommodation for Students Ltd.

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