UK Landlord Forum / Life

Hi

Today I got a shock as I found that the interest only mortgage on one of our properties has more than quadrupled after the fixed term contract concluded. We will of course do our best to try to get this down, but as it was, we were only making a modest profit on this.

At the current rate, we are making a loss of several hundred pounds each month, but perversely will still have to pay taxes on this now that the full mortgage interest isn't tax allowable. It got me to wondering how on earth the government (or governments - this having being introduced by the tories and unlikely to be reversed under Labour) can justify this unfair treatment.

I know that banks are now entering the residential rental market as many private landlords exit. Banks are also unaffected by inheritance taxes (which the latest punitive measures in the recent budget will make more inevitable for anyone who happens to own both property and a private pension). Are we looking at a new era where only banks are to remain in the rental markets in future?

Quote from: Neverthetwain on January 03, 2025, 08:46:27 PMToday I got a shock as I found that the interest only mortgage on one of our properties has more than quadrupled after the fixed term contract concluded.

How has this come as a shock? Did you really think base rates were going to remain under 1% indefinitely?

Quote from: Neverthetwain on January 03, 2025, 08:46:27 PMAt the current rate, we are making a loss of several hundred pounds each month, but perversely will still have to pay taxes on this now that the full mortgage interest isn't tax allowable. It got me to wondering how on earth the government (or governments - this having being introduced by the tories and unlikely to be reversed under Labour) can justify this unfair treatment.

It depends whether you view unincorporated residential letting as a business or an investment. The prevailing view in government (of all colours) seems to be that it is an investment, so disallowing the interest to fund that investment is consistent. If I borrowed money to buy shares, gold or Bitcoin, say, I wouldn't be entitled to tax relief on the interest.

Quote from: Neverthetwain on January 03, 2025, 08:46:27 PMAre we looking at a new era where only banks are to remain in the rental markets in future?

Not necessarily banks: any incorporated entity is entitled to tax relief on money it borrows to fund the business, even if that business is residential lettings. There will probably be a gradual increase in corporate landlords, but individual landlords will still have their place. They'll just have to be a bit more astute when doing their sums: if your property isn't viable without interest relief, then it's not viable full stop.

No I clearly didn't expect the rate to stay at the 2% I had before but it's  a shock as with a Bank of England rate of 4.75% I also didn't expect the bank's variable rate to be almost double that above 9%.

The difference with Bitcoin or other investments is that you only pay capital gains tax so would never be in a situation where you're out of pocket but still have to pay taxes on losses. The very idea of paying income taxes assumes taxes on the portion not related to the investment (which is taxed under CGT on sale). Interest is incurred "wholly and necessarily" for the purpose of generating the rental income being taxed. It also cannot be added to the cost of acquisition for the purpose of calculating a capital gain.

Apart from seeming to be inherently unfair it is unlikely to be sustainable for many private landlords opening up the sector to institutional investors - already with deeper pockets and with added tax advantages.

The Government want PROFESSIONAL Landlords who can read legislation and adhere to it - for far too long we've had too many shady (at best) Landlords who have little concern for the Law or anything else.

If current Landlords aren't keeping on top of what's happening now, next year and perhaps even proposals being discussed 3+ years away then TBH they aren't the type of professional Landlord any of us want in the sector.

Rules and regulations are going to get much much tighter (some new ones have just been added to the Renters Rights Bill with I'm sure more to be forced through as the time to debate them dwindles to nothing).

Will all of this affect my rental business? yes and no. I will have to adapt to many of the changes but Ive always been at the higher end of rents charged so I have a far greater buffer to deal with the changes.

I would suggest the OP has been sat back enjoying the relative quietness of his passive income but has now woken up to a huge shock that should have been foreseen and managed quite some time ago.