05 Aug 2015
Higher Rate of Mortgage Interest Relief to be Phased Out
In his budget earlier this month the Chancellor announced plans to withdraw the higher rate of mortgage interest relief over a 4-year period from April 2017. With the Bank of England warning that the rapid growth in buy to let properties could pose a risk to financial stability the Chancellor has acted. What effect this will have is hard to say as only 1 in 3 properties entering the private rental sector since 2007 did so with the use of a buy to let mortgage.
For those that it does affect they could also be faced with lenders imposing tighter affordability calculations for buy to let mortgages to take account of higher tax bills and reduced income.
It has been suggested that higher rate tax payers investing in buy to let properties might do so by setting up a limited company to sidestep the changes. With the gradual phasing in of the changes landlords do have time to consider their options.
If there is a move to forming limited companies it will be interesting to see how lenders respond as not all of them will currently lend to limited companies.
Interest Rates May Rise
In a speech on 18th July Mark Carney, the Governor of The Bank of England, indicated that interest rates could rise ‘at the turn of this year’. He went on to suggest that increases would typically be much smaller than the half of a percentage point that we used to see - so probably one quarter of a percentage point at a time. But, this is economics and as John Kenneth Galbraith said, ‘economics is not an exact science’.
Rents Increase – But So Do Rent Arrears
Annual rents were 5.6% higher in June than they were 12 months before according to figures produced by Your Move and Reeds Rains with a ‘typical’ rented property now costing £789 a month.
But rent arrears now represent 8.7% of all rent payable and this is up from 7.6% in May. The increase in rent arrears isn’t just a concern for the private sector. Local authorities and housing associations have seen a significant rise in average rent arrears according to research by Grant Thornton.
Kensington has removed its’ minimum income requirement for experienced landlords.
Accord Mortgages have made changes to their buy to let product range from 21st July. The new products are available with a range of incentives including cashback, free standard valuation and free legal service.
Leeds Building Society has refreshed its’ holiday let mortgage range.
Mortgage Trust continues to offer free mortgage valuations on their products.