Tue 21 Nov 2017
By Ed Tyman - Group Lettings Manager
Now, how often do we watch the adverts asking us to switch our bank account and receive £100? It sounds like a great idea and let’s be honest we could all do with an extra £100 but for whatever reason we don’t - we can’t be bothered. Literally as I write this article I along with much of the population is paying interest on a credit card or too much for our gas and electricity when if we just spent just ten minutes of our time we could arrange a balance transfer with great 0% interest offers or switch energy tarrifs. But like most people, I think I’m too busy and no doubt I’ll go home today, have dinner and put it all off again.
The same principle very much applies when it comes to reviewing your mortgage arrangements. However the potential benefits are much bigger and there really shouldn’t be any excuses when it comes to looking after one of the biggest commitments of your life!
Don’t take my word for it; let’s look at the facts.
Well before we look at re-mortgages let’s just start with people looking to purchase their first or additional buy to let property. In January 2018 buy to let lending criteria will begin to get a bit tougher. Whereas lenders used to require rents to cover at least 125% of the monthly mortgage payments at an interest rate of 5%, some lenders have increased this to 145% at 5.5%. Remember, however, that different lenders take different approaches and some are more flexible than others, so it’s important to get professional advice.
New Landlords must also factor in the second home stamp duty surcharge introduced last April. Both new and current landlords will also no longer be able to deduct all of their finance costs from their property income to arrive at their property profits. They will instead receive a basic rate reduction from their income tax liability for their finance costs.
Landlords will be able to obtain relief as follows:
- in 2017 to 2018 the deduction from property income (as is currently allowed) will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction
- in 2018 to 2019, 50% finance costs deduction and 50% given as a basic rate tax reduction
- in 2019 to 2020, 25% finance costs deduction and 75% given as a basic rate tax reduction
- from 2020 to 2021 all financing costs incurred by a landlord will be given as a basic rate tax reduction
On the upside, mortgage rates are very competitive. For example there’s a host of 2 year Buy to Let fixed rates available under 2.00% and 5 year fixed deals can be found from around 2.50%. So being selective with your finance product can really help when looking at strategic solutions to offset any loss. Whether you’re looking at your first buy to let mortgage or you have a portfolio of property currently financed it pays to be diligent when it comes to the options out there.
What else can I do to protect the profit my Investment returns?
Incorporation of a buy to let business
It could be a really smart move if you’re potentially facing significant losses to set up a property portfolio in a limited company structure. This will allow you to pay corporation tax at 19% rather than your current marginal rate. There are also a few other financial benefits when incorporating a portfolio and we recommend you speak to a qualified financial advisor.
Transferring ownership to a spouse
If your partner is a lower rate tax payer you could consider transferring ownership into their name to reduce tax liability. Be careful not to push them into a higher rate tax bracket or it could backfire.
So it’s clear to see there is a lot going on in the world of buy to let finance and review. Sowerbys have teamed up with London and Country who offer a completely free and award winning service that truly looks at the whole of the market for you. Don’t be fooled into paying a fee for this service and being restricted to a minimal panel of lenders. To find out how much you could save or to plan for future investment please contact me at Sowerbys and we will take care of the rest.
"A HUGE 'thank you' from all of us for the extremely hard work you and the Sowerbys team did to make our sale and purchase happen. It still hasn't quite sunk in yet! We went to see the property last week and the house looked beautiful and we can't really believe it is finally ours. It is all down to your resilience, determination and efficiency. We would always be happy to recommend Sowerbys and will use you in any future moves ( although we really hope that will be a very long time away!) Wishing you a relaxing Christmas break. "