Despite calls for clarity, the implications of the government’s proposed changes to BTL tax relief seem pretty clear to me: Higher tax-paying individual landlords, and those who will tip over into this bracket, will have to pay more.
I can’t see the government changing its mind even if the petition to reverse the tax relief restriction does garner the 100,000 signatures necessary to consider the issue for debate in Parliament. As I write, the number of signatures stands at 26,385. The petition closes on 27 January 2016.
The Government has already officially responded to the petition but the response, which I urge you to read, is likely to be seen as unfair, incoherent and missing the point to many landlords because:
• It’s not “fair” because it fails to recognise that finance costs are a normal cost of doing business; therefore, it is not fair that some individuals should not be able to offset the full cost of doing business against their income.
• It is unfair that some individuals should be penalised for buying investment properties in their own names, whereas, if they had bought through a limited company they would not be so penalised. The change has the impact of retrospective taxation legislation.
• The cost of housing for an owner-occupier is paid for out of taxed income – as is the rent paid by the tenant. Rent paid by the tenant is used by the landlord to cover costs, including finance costs.
The impact of this tax change is that the cost of providing some rented property is subject to a further tax charge, meaning that it is disadvantaged when compared with an owner-occupier as well as when compared with all other landlords who are not subject to this restriction.
Sorting out a fairer tax position might be easier if someone were able (or brave enough) to officially define the difference between an investment and a business. When does a property investor become a landlord? Can the two ever be separated?
Equally interesting is that since the initial outcry there has been relatively little noise about the Government’s other proposal – to allow residential landlords of furnished rental property to deduct the costs incurred by them improving and maintaining the property.
It seems very reasonable to me and it will replace the existing arrangement whereby landlords of furnished properties can deduct 10% of their rent from their profit to account for wear and tear, irrespective of their expenditure.
Moving on to a subject that comes and goes in the headlines – Bank Rate. In recent weeks there has been much speculation about when it might start to rise.
Before the news about China’s economy hit the headlines, some pundits thought that rates could go up at the end of this year. Personally, I don’t think China’s woes will keep rates low and the MPC may well vote for an increase in order to protect British exports.
Personally I think that Bank Rate will start to rise from February next year. As you know, I’ve been wrong before, so I have another bet with my colleague, sales director, Steve Olejnik, who thinks Q3 2016 at the earliest.
The speculation doesn’t seem to have had much of an effect on the buy to let lenders and I was surprised to tot up the number of two year rates currently available – 449.
That’s nearly half of all BTL products. You would think that with rate rises on the horizon, lenders would be more inclined to increase the number of five-year fixed rate products, (currently, I count 230). I guess two-year products make a better headline.
We may have started promoting them too early for some but I still firmly believe that landlords should have at least some five year fixed rates in their portfolio to protect their cash flow when Bank Rate starts to move.
According to our Buy to Let Mortgage Product Index, pricing for both five and two year fixed rate products started to creep up last month and I very much doubt they’ll get any cheaper.
For us, business is brisk where five year fixes are concerned. In particular, Axis Bank’s 4.09% to 75% LTV with RTI of 125% at pay rate, and TSB’s 3.79% to 60% LTV with no arrangement fee are proving popular from an enquiry perspective.
So to close, and to stay within my comfort zone, here are my best buys for five year fixed rate buy to let mortgage products (not including those mentioned above).