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Changes afoot with the Mortgage Credit Directive legislations

The Mortgage Credit Directive (MCD) is the EU directive on credit agreements for consumers relating to residential immovable property and with new changes imminent during March 2016 and the new tax year, we thought that it would be a good idea to take a look at some of the things you should be aware of in regards to the following:-

  • Consumer Buy-to-Lets
  • Reduction in Tax Benefits on Buy to Lets
  • Stamp Duty changes on second home purchases

Consumer Buy to Lets

On 21st March 2016, Consumer Buy to Let (CBTL) mortgages, whilst not being wholly regulated are to be granted wider consumer protection, making a distinction between Consumer and Professional Landlords. Those who have become “accidental landlords”, inheriting a property and seek to rent it out and people who rent a home that was previously lived in will be deemed a Consumer, differentiating from Professional landlords, who buy and rent properties as part of a business/property portfolio.

The Treasury has defined consumer buy to let as 'a buy to let mortgage contract which is not entered into by the borrower wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by the borrower.'

Affordability tests will be undertaken, similar to those of residential mortgage seekers. It is estimated by the Treasury that 11% of existing BTL mortgages will fit into this bracket.

There is some confusion over interpretation of these new procedures; direction and guidance is still being sought and provided.

Reduction in Tax Benefits on Buy to Lets

In his 2015 Budget, Chancellor George Osborne announced some changes that are going to be made in addressing tax benefits to landlords on their Buy-to-Let properties, and this new regime will be phased in at the end of the next tax year.

Currently, ‘Wear and Tear Allowance’ can be claimed allowing a landlord to have a reduced tax bill in order to maintain their property, whether they have made any changes or not; from April however, only costs actually incurred, evidenced by receipts, will benefit from tax relief. 

More tax changes on BTL profits will be on the way a year later in April 2017…

Stamp Duty changes on second home purchases

It's not an April Fool’s day joke; from 1st April 2016 you will be charged an extra 3% for buy-to-let and second home purchases on stamp duty bands above £40,000. This has big implications, especially for properties in higher price brackets. For example, a £275,000 property will more than triple the stamp duty costs.

Whilst the cost implications seem quite drastic, according to George Osborne, the extra stamp duty will mean that an extra £1 billion will be accumulated by 2021, with plans to reinvest some of the pot back into local communities.

 

If you have any queries on these changes and how they may affect you, please contact one of our team and we will be happy to help.