NRLA Calls For Changes To Buy-To-Let Mortgage Tax Rules

September 17, 2022

The National Residential Landlords Association (NRLA) has called on the new administration to look again at the rental reform white paper, which they fear may damage the housing market. Simply Business reports that with Liz Truss as the new Prime Minister, and Simon Clarke as the new Housing Secretary, there are hopes of improved conditions for landlords.

At a time when rental properties are in short supply and demand is increasing, the NRLA has called for the government to take action to help, rather than hinder, buy-to-let (BTL) landlords.

For example, tax changes which were gradually introduced between 2017 and 2020 mean that mortgage interest tax relief has now been replaced with a 20% tax credit on interest payments. Previous to this, landlords were able to deduct mortgage expenses from the rental income.

This means that higher rate tax payers in the 40% bracket cannot claim tax back on their mortgage repayments. In some cases, this has doubled the amount of tax landlords pay, and there fore significantly reduced their rental income.

Simply Business reports that this has led to 11% of landlords passing on the cost to their tenants, and 16% considering or actually selling up. The rising costs, coupled with other regulations around energy efficiency ratings and short term lets, are also thought to be driving some landlords out of the market.

Ben Beadle, NRLA Chief Executive, said: “The last six years prove that it was nonsense to think that cutting the supply of rental housing when demand is so strong would make it easier for those saving for a home of their own. Driving rents up just leaves tenants with less cash to save for a deposit.”

He added: “We need a strong and vibrant private rental market that meets the needs of those who rely on the flexibility it provides, those who need somewhere to live before becoming homeowners and those for whom the promise of social housing tomorrow provides cold comfort today.”

One way in which some landlords have minimised the impact of the tax relief changes is to form a limited company in order to take out a BTL mortgage, to separate the rental income from their other income sources. This means that they pay corporation tax instead of income tax, which is currently fixed at 19%, and may even be reduced further.

This has led to an increase in the number of new BTL companies, from 32,109 in 2019 to 47,400 in 2021. There are also more specialist BTL mortgages for limited companies available. It may not be the right solution for every landlord, but it may offer significant cost benefits to some.

Despite the reforms to the rental market, demand from tenants is currently soaring, and as house prices remain high while incomes are squeezed, BTL properties are still a very popular and reliable way of generating income.

If you are looking for remortgage advice, please get in touch today.

Your home may be repossessed if you do not keep up with your mortgage repayments.

Back to Blog
;window._klOnsite = window._klOnsite || []; window._klOnsite.push(['openForm', 'R6NsLH']);