Changes in tax regime prompt lenders to revise buy to let offerings

TSB and Aldermore are revising their buy to let offerings ahead of the recent government changes that are due to effect buy to let investors as from 1st April 2016.

High street bank, TSB, will increase the rate of interest it uses in its buy to let affordability calculation from 5% to 5.5% as from Tuesday 12 January.

The new rate of 5.5% will apply to mortgages over 65% loan to value (LTV).

Mortgages which are less than or equal to 65% LTV will be assessed against the notional rate of 5%.

Applications which are currently being processed, including decision-in-principles that are submitted before 8pm on 11 January, will not be affected unless the application does not go ahead and is then submitted at a later date.

The Chancellor’s decision to decrease the amount of tax relief landlords can claim on their mortgage interest payments has led to several lenders amending their buy to let affordability calculations.

For example, while Barclays has maintained its notional rate of interest at 5.79% it upped its rental ratio cover from 125% to 135% in November last year, stating that the changes in the tax regime would increase costs for landlords meaning it needed to revise its calculator to reflect the added pressures.

Meanwhile, SME-focused bank Aldermore is looking to support those investing in buy to let properties through limited companies by removing the additional 1% charged on its range of specialist limited company (single residential unit) buy to let products.

The move will align its limited company offering with its standard individual buy to let deals.

Furthermore, the bank has re-introduced its buy to let two year fixed deal for individuals at 4.68% for an 80% LTV mortgage.

Charles Haresnape, Group Managing Director, Mortgages at Aldermore said:

“With recent changes towards buy to let, Aldermore has looked to support those investing through limited companies by reducing rates in order to bring them in line with our product range for consumers.

“Feedback from our brokers shows an increase in the number of enquiries for buy to let products through limited companies. It is important that we are flexible to the investment patterns of our customers, and we have responded by levelling the playing field between our consumer and company buy to let rates.

“With one in five properties in the UK owned by a private landlord, the private rental sector is a hugely important component of the housing market, and supporting buy to let landlords is crucial at a time when housing supply pressures have seen the number of number of households renting rise from 2.3 million in 2001 to 5.4 million in 2014.”

From April 2017, the government will gradually phase out the higher rate of tax relief over a period of four years.

Buy to let property investors will no longer be able to claim 45% tax relief on their monthly payments, instead they will only be able to claim the basic rate of 20%.

 

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