The majority of landlords in the UK believe they will be affected by the new tougher mortgage affordability tests and by income tax changes due to be introduced in April of this year.
Some 60% said they believe they will be directly affected by income tax relief changes but 29% said that they would not, according to the latest property investor survey from Mortgages for Business.
It is thought that these landlords are predominantly likely to be a mix of basic rate income tax payers and landlords who operate their portfolios through limited company vehicles which are subject to corporation tax.
And some 11% said that they still did not know if the changes would affect them directly and there is a suggestion that some might not yet fully understand the implication of changes being introduced in 2017.
‘We are still encouraging landlords who haven’t already taken professional advice on the matter to do so as soon as possible as some may find that the new formula will tip them into the next tax bracket leaving them worse off. The new regime starts in April, so there’s not much time left to make strategic decisions and take action,’ said David Whittaker, chief executive officer of Mortgages for Business.
‘It has certainly been a tough 18 months or so for landlords, so it’s encouraging to learn that the majority are getting to grips with changes that will dramatically alter the way they operate,’ he added.
The survey also found that 60% believe that they understand the impact of the new Prudential Regulation Authority (PRA) guidelines on buy to let lending and 25% said they partially understood the implications of the changes to borrowing criteria.
The changes mean that buy to let lenders have been obliged to tighten their affordability calculations in recognition of the increased tax burden being imposed on landlords borrowing personally.
However Whittaker said it is worrying that 9% of respondents did not know how the revised affordability calculations would affect how much they could borrow and 6% were completely unaware of the new guidelines, despite wide media coverage on the topic.
With tax changes due to take effect in April, landlords are continuing to move toward incorporation, with 32% of respondents owning at least one property in a limited company, up 2% on May 2016.
This suggests that landlords are thinking seriously about how to adapt to market changes and maximise their returns, although it is portfolio landlords, those who own four or more mortgaged properties, who lead the a way in this regard.
When asked whether future purchases would be made personally or using a limited company, 54% opted for the just incorporated route and 16% said they would use both. The remainder was split down the middle between those who said they would continue to borrow personally and those who had yet to decide how to proceed.
Five year fixed rate mortgages were found to be the most popular product type over all with 34% of respondents expressing a preference for this category of loan, a tremendous return to form after falling popularity in previous surveys.
The firm says that this is clear evidence that lenders’ focus on competitive pricing of five year fixed rates has been successful in attracting landlords keen to maintain some certainty of cash flow following a year of economic turbulence and growing speculation that interest rates and inflation will rise next year.
Despite a tougher operating environment, the proportion of landlords seeking to expand their portfolios rose to 45%, up from 41% in May 2016. This suggests that most are willing to absorb the increased costs, adapt strategies and remain in the property investment market, which still provides better returns than most alternative asset classes.