With the introduction of Section 24 “the biggest threat landlords have ever had to take” just around the corner, an increasing number of landlords unable to reach mortgage payments and a possible increase in the Bank’s base rate in May, the UK’s buy-to-let market is looking decidedly shaky.
Section 24 of the Finance (no.2) Act 2015 might mean that over half of UK landlords will be pushed into a higher rate of tax despite their income not having increased, and some might end up renting at a loss.
Until now, landlords have been able to deduct the full cost of their mortgage interest payments on their rental properties before they pay tax. Starting April 2017, mortgage, loan and overdraft interest costs will not be considered in calculating taxable rental income.
This will just add more weight to an already, for some, crippling load. The burdens already inflicted on landlords by the government are starting to reveal serious cracks in the market. According to recent figures from UK Finance, the number of landlords who are seriously behind with their mortgage payments has jumped by 20% in the last year alone.
Furthermore, financial analysts think a rise in the Bank’s base rate from 0.5% to 0.75% in May has become much more likely, with another one expected to follow in the Autumn.
Any such rise could apply more pressure to buy-to-let homeowners, specifically those with variable or tracker rate mortgages who would be likely to see their payments increase once again. Around 8.1 million UK households have a mortgage, and of those almost half are on either a standard variable rate or a tracker rate.
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