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The challenges facing the buy-to-let investor

Strong growth once seen in the Buy-To-Let (BTL) market has begun to tail off in the last two years, as the impact from a gradual withdrawal of mortgage interest tax relief, stamp duty land tax (SDLT) reform and stricter mortgage underwriting rules begins to shine through.


Before April 2017, BTL landlords were able to deduct the full cost of mortgage interest payments from their rental income, reducing their tax bill. From April 2017 and until April 2020, transitional rules allow for a gradual phase down of deductible mortgage interest from rental income before tax is applied. Private landlords will then only benefit from a 20% tax deduction for mortgage interest relief, unable to deduct mortgage interest costs against profits.

As a consequence of this change, many BTL landlords paying higher rate income tax will see the profitability of their investment fall. As shown in the table below, under the old tax rules a private landlord and 40% tax payer with a rental income of £12,000 p.a. and mortgage interest costs of £5,400 p.a. would be left with an after-tax profit of £3,960 p.a. From April 2020, net profit would reduce to £2,880 p.a.

BTL Mortgage Tax Relief Changes


Monthly gross rental income

Assumes 40% Tax


Monthly mortgage interest



Transitional Rules New Rules
2016/17 2017/18 2018/19 2019/20 2020/21 2021/22
Rental Income £12,000 £12,000 £12,000 £12,000 £12,000 £12,000
Mortgage Interest (3%) £5,400 £5,400 £5,400 £5,400 £5,400 £5,400
Deductible Mortgage Interest £5,400 £4,050 £2,700 £1,350
Taxable Rental Income £6,600 £7,950 £9,300 £10,650 £12,000 £12,000
Tax on Rental Income £2,640 £3,180 £3,720 £4,260 £4,800 £4,800
Mortgage Interest Relief £270 £540 £810 £1,080 £1,080
Tax Due on Rental Income £2,640 £2,910 £3,180 £3,450 £3,720 £3,720
Net Profit After Tax £3,960 £3,690 £3,420 £3,150 £2,880 £2,880

A simple reduction in the cost of borrowing can also make a significant difference.  In our earlier example, even under new rules in 2020/21 a reduction of 0.75% to the interest rate would help to maintain the status quo and net profit at £3,960 p.a.

As well as being able to use a residential property to secure a mortgage loan, Brown Shipley can also use a client’s investment portfolio as collateral (a “lombard facility”).  Without the need to incur valuation or legal fees and often at a rate of interest that is lower than a traditional BTL mortgage loan, the risk is borne by your investments and you remain “in the market”, able to enjoy any potential investment capital appreciation and income.  Furthermore, you are still able to deduct an element of your mortgage interest against rental income under transitional rules and take advantage of future mortgage interest rate relief under the new rules.


In April 2016, the government introduced a 3% surcharge on SDLT for second homes and BTL  properties.  Basic economics dictates that as transaction costs increase, sales of BTL properties will decrease, as investors weigh up the financial merits and future capital gain opportunities against the cost of buy-in.  With slimmer profit margins to consider, it really is an old fashioned case of “caveat emptor”.


In January 2017 the Prudential Regulation Authority introduced stricter affordability tests for BTL mortgages.  Focus now lies on a landlords experience and track record, their wider assets and liabilities and how a new BTL property purchase and mortgage loan ‘fits in’ with the total portfolio and aggregated debt levels.  Martin Betts, Head of Credit Risk at Brown Shipley says “A portfolio of Buy-to-Let properties can often be an important component of wealth planning. We quickly develop a thorough understanding of our client’s circumstances allowing us to take a holistic view of the funding required.  Individual, tailored and considered financing is our goal, backed by a flexible and streamlined approval process to meet your needs”.

By Paul Spann, Client Director at Brown Shipley.

Source: The Business Desk

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Crawley Buy To Let Property Investor Fined For Illegally Evicting Tenants

A Crawley buy to let property investor has been fined after being found guilty of illegal eviction, having discarded his tenants possessions and changed the locks of her rental property.

Mitesh Patel, 44, of Chanctonbury Way, Southgate, Crawley, was fined £1,700 for his offence. He had dumped the possessions of his tenants, a couple he was attempting to evict, on the lawn outside their rented flat. He had also changed the locks to the property to prevent them from returning.

Mr Patel was also ordered to pay costs of £3,000 for the offence, as well as £300 in compensation at Horsham Magistrates’ Court on December 18 for illegally evicting the Crawley couple from their home in his property. He was found guilty of breaching the Protection from Eviction Act 1977.

Crawley Borough Council explained that the couple had approached the council in order to report the eviction. The pair had returned to their rented property in February 2017, and were greeted with the sight of their possessions on the lawn outside their flat. They then discovered that the locks had been changed. Not only did the actions of Mr Patel breach eviction law, they were also caused serious distress to the tenants through his improper actions.

Mr Patel had pleaded not guilty to the breach of the Protection from Eviction Act 1977 in front of the court.

Crawley Borough Council has since helped the evicted couple to find alternative privately rented accommodation. This was done through the council’s ‘Rent Deposit Scheme.’

Council leader Peter Lamb spoke out about the case after the hearing. He commented: ‘Rogue landlords cannot just evict privately rented tenants whenever they want. They must follow the correct legislation and issue notices in the right way. Landlords who break the law now know that we are serious about protecting tenants’ rights.’

Source: Residential Landlord