Mortgage lenders call for tax breaks for landlords

Mortgage lenders call for tax breaks for landlords

Expansion of the buy-to-let market is set to continue, mortgage lenders say, but the Government should consider tax incentives for landlords.

In Germany, France and the USA, for example, depreciation and rental losses can be offset by landlords against income, and in some countries the rate of capital gains tax declines the longer landlords hold on to their property.

The Council of Mortgage Lenders is calling on the UK government to consider similar steps.

The CML says that reforms by lenders have allowed the market to grow in recent years. While it accepts that buy-to-let mortgage rates are “a little higher” than in the residential market, it says that nevertheless a range of attractively priced loans has emerged.

Furthermore, landlords can still borrow on an interest-only basis – something which has become much harder for residential borrowers. Finally, it has become easier for people to rent out their own property as an alternative to selling.

A key, says the CML, is that lending to buy-to-let borrowers is conservative, at around 65% Loan to Value. The insistence of lenders that borrowers’ earn more in rent than they pay out each month on their mortgage also cushions them against loss of income during void periods.

However, the CML does express some concerns – citing the Government’s localism agenda, which allows local councils to introduce their own landlord licensing schemes. A recent Paragon survey found that almost three-quarters of landlords believe selective licensing would deter new investors in the sector.

The CML urges the government not to consider any further regulation until it has reflected on the current situation. It says piecemeal regulation with uneven enforcement adds to the costs of landlords, who mostly run small businesses.  

The CML says: “Regulation for lenders should reflect the fact that the decision to invest in the private rented sector is a commercial transaction. Regulation intended to protect consumers is therefore not appropriate for the buy-to-let sector.

“But some aspects of lenders’ buy-to-let activity are regulated – as they should be – through, for example, rules governing financial promotion or unfair contract terms and consumer regulations.”

Buy-to-let lenders, says the CML, have typically required borrowers to offer assured shorthold tenancy agreements of up to 12 months. This is so that a landlord or lender can obtain vacant possession of the property with reasonable speed.

The CML, which is under pressure to get lenders to loosen their requirements, says: “Although shorter-term tenancies are likely to remain the most popular choice for most of those renting, we are continuing to work with lenders to understand the risks posed by longer-term tenancies – and how they can be overcome.”