Mortgage brokers are reporting a surge in landlords re-mortgaging their homes and using the cash to pay down their buy to let mortgages in a bid to beat the tax hike at the start of the new tax year.
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New Landlord Tax Rules coming into Effect
New tax rules mean that landlords can no longer offset their mortgage interest against income. Mortgage interest tax relief is being phased out and will disappear completely by 2020, to be replaced with a flat rate 20% tax credit. Landlords with mortgages will end up paying more tax on any money they earn. Basic rate taxpayers are not affected, but some will see their incomes pushed into the higher rate threshold.
Take Advantage of Low-Interest Rates
Residential mortgage interest rates are very low right now, so taking advantage of home equity is not going to be terribly expensive. However, this strategy only works if your BTL mortgage interest rate is higher than the mortgage in your home. But, in most cases, BTL mortgages are more expensive, so it is potentially a good idea.
It isn’t only a fear of paying more tax that is driving the move to re-mortgage residential properties. Landlords are also concerned about tough new lending criteria, with mortgage lenders now obliged to carry out stress tests when assessing affordability.
It’s a good idea to talk to a financial adviser if you have any concerns about your tax situation or you need some mortgage advice.