PRA SHAKES UP BUY TO LET MORTGAGE MARKET
Hot on the heels of the second property stamp duty hike in 2016, the phased restriction of Buy to Let mortgage interest relief rolls out in April 2017. Not only will these changes increase your tax liability but there may be other implications such as the loss of Child Benefit, due to the High Income Child Benefit Tax Charge.
This is not a new story and you’ll probably be aware of this already. However, the PRA decided in September 2016 that with expected lower net rental income available, a landlords ability to afford their investment mortgage may be restricted. Therefore, from January 2017 new rules are in place that will increase the rental coverage needed on new Buy to Let mortgages. In general terms the 2016 industry standard of 125% coverage at 5% interest, has increased to 145% at 5.5% interest.
So what does this mean in pounds and pence?
In 2016 a gross rental income of £1,000 per month would have yielded a mortgage of £192,000. Using the new calculations, this same scenario would yield a mortgage of just £150,470. That’s around 22% LESS than last year!
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