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​Retirement beckons for some buy to let landlords

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Barclays has been the first major bank to respond to the changing landscape, demanding potential landlords prove that the rent they receive is equal to at least 135% of the mortgage cost, up from 125%. This shocked a mortgage market in which the 125% figure has been the norm for years. Coventry Building Society’s Godiva buy-to-let business raised its “stress test” for new applicants, while Virgin Money, currently top of the buy-to-let best-buy tables, said it is also reviewing its lending criteria.

Thankfully, the two biggest buy-to-let lenders – Lloyds subsidiary BM Solutions and Nationwide’s The Mortgage Works – say they currently have no plans to tighten lending criteria.

It’s obvious that what the government is trying to do is to push buy to let into becoming more professional.

Simon Collins, John Charcol Mortgage Advisers

A quick recap why some are leaving buy to let:

Stamp Duty:

This last Autumn, chancellor Osborne made the big announcement of an extra 3% in stamp duty on purchases of 2nd homes and buy to let properties that will start this April. That means even properties that fall below the previous first threshold will face a 3% stamp duty bill whilst those in the final threshold are looking at a total of 15%. In 2015, the average buy to let property was £184,000 and under the April 2016 rules landlords would have faced a stamp duty bill of £6,700 compared to £1,180 in 2015.

Wear and tear allowance:

Also from April 2016, landlords will no longer automatically be able to deduct 10% of their rental profits as notional wear and tear. Instead, they will only be able to gain the tax relief on costs that have actually occurred when replacing furnishings etc in the property.

Tax relief:

This is the big one and thankfully won’t kick in until April 2017 giving landlords something of a chance to plan ahead. Under the current system, landlords can claim tax relief on mortgage interest payments at their marginal rate of tax. Top earners would be able claim 45% but from April 2017 this will over time be slashed to a flat rate of 20% making mortgage repayments suddenly more expensive.

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