MORTGAGES AND TAX

CONTRARY to popular belief, not every landlord is in the property business by choice. People’s circumstances often change, resulting in the need to move house but not sell up.

Some people temporarily move abroad for work, while others let a property when they move in with a partner or when elderly parents move into long-term care.

A slow property market, combined with Brexit uncertainty, means many people are now more likely to hang on to homes while they wait for the house price dust to settle even if they need to rent elsewhere.

Here, The Mail on Sunday gives the legal, financial and practical low- down for these ‘ accidental landlords’ on letting out their property. ACCIDENTAL landlords are not allowed to simply rent out their property and keep their residential mortgage. To let a property without falling foul of your mortgage lender you need either the lender’s ‘consent to let’ or a specialist buy-to-let mortgage.

Mark Harris, chief executive of mortgage broker SPF Private Clients, says: ‘Consent-to-let tends to be on a short-term basis. If your lender agrees then they may do nothing, charge a one-off fee or load the interest rate during this period.

‘Quite often the consent-to-let will be for a finite period – typically six or 12 months. If the property is to be let out on a long-term basis then landlords need a buy-to- let mortgage.’ Buy-to-let lenders typically require the rent to cover 125 per cent of the mortgage repayments; so if your mortgage is £1,000 a month, you would need a rental income of at least £1,250 a month. Most lenders demand a deposit, or equity, of at least 25 per cent of the property value.

There are also higher mortgage arrangement fees – often a percentage of the loan amount, rather than a fixed sum.

The way landlords are taxed began to change in April 2017. Under Section 24 of the Finance Act, there is a gradual tapering down in the tax relief that allows landlords to offset the cost of mortgage interest against their rental income.

Last April saw this tax relief reduce to 50 per cent. It will drop again – to 25 per cent – in April 2019, and then to zero per cent in April 2020 when i t will be replaced by a tax credit worth 20 per cent of mortgage interest.