Low levels of awareness of new lettings tax regime, survey reveals

A substantial majority of new buy to let mortgage applicants are unaware of the mortgage tax relief changes, according to a new survey. 

Some 62 per cent of applicants were unaware of either the changes to mortgage tax relief or the EU's Mortgage Credit Directive, even though both could impact their ability to secure a mortgage.  

This lack of awareness rises to 71 per cent amongst 'accidental landlords', namely those who rent out property due to unforeseen circumstances such as being unable to sell, or inheriting a home.

In the research, by Direct Line for Business, only seven per cent of mortgage advisers believed that the EU changes would have a positive impact on approvals of buy to let mortgage applications, compared to 59 per cent who expect it to have a negative impact.  

The EU's MCD could see circumstances where landlord mortgage lending will be viewed as “consumer” lending and could be subject to more stringent lending criteria.  Accidental landlords with one or two rental properties may not be able to pass the expected new affordability tests.   

Changes to the mortgage tax relief - first announced by Chancellor George Osborne last year - are set to be phased in from April 2017 with landlords no longer able to deduct mortgage interest payments before calculating their tax bill. They will instead get a tax credit equivalent to 20 per cent basic-rate tax on this amount. 

Landlords are now also being hit by the stamp duty surcharge introduced last week, and more stringent applications of the Wear and Tear allowance.