How to avoid the new buy to let rules
There have been two recent changes in the regulations concerning buy to let investments that affect commercial mortgages.
From April 6th 2017, new stress tests for buy to let mortgages were introduced. These stipulated that rents on buy to let properties should cover 145% of the mortgage repayments if the interest rates were to go up to 5.5%. Unless these conditions are met a standard buy to let mortgage application will probably be refused.
Tax relief on buy to let mortgage interest payments is now 20% for all borrowers. Previously, landlords on higher tax bands of 40% or more could claim tax relief equivalent to their tax band.
There are exceptions to the new rules. A mortgage broker can advise landlords on how to save these increased costs.
If rented accommodation is owned by a company rather than an individual, then the company will be taxed at a lower rate compared to the individual. The rent stress test applied to a company applying for buy to let mortgage will be around 125% not 145% to take into account the lower taxes.
When remortgaging on a like for like basis, many lenders will not apply the new stress tests. Commercial property is also exempt from the tests.
If a landlord can finance a deal with a loan for three years or less, then a bridging loan may be appropriate and this will not be subject to as stringent stress tests as a standard commercial mortgage.