Advisers are obliged to query potential tax evasion on rental income and notify relevant authorities when they believe there could be an issue with borrowers’ affairs.
If it later emerges the brokers failed to flag problems, they could end up in legal trouble.
In reaction, one broker firm, White Financial Services now asks landlord borrowers to provide their SA302 with applications, which provides proof of tax and income.
Where clients are unable to produce the form, they are asked to confirm declaration of rental income.
Managing director, Dan White told Mortgage Solutions: “There’s a fine line between being obstructive to business and carrying out due diligence.”
It comes as other brokers report pulling up landlords over their tax affairs.
But White believes many intermediaries still don’t realise the obligations they must fulfill – and said more education is needed across the industry.
The Somerset-based broker was in part prompted to make changes to case risks and audit processes after attending a Birmingham Midshires event he said.
Lenders and brokers share responsibility
Phil Rickards, head of BM Solutions, said: “When the changes to the tax treatment of landlords were first announced and lenders started working through developing solutions, it quickly became clear that things would need to change.
“With a number of lenders opting for a tailored approach, based around clients’ tax position, setting out an individual’s exact income position up front would help ensure that the correct lending decision was made and any future additional tax liability would be taken into account.
“At that point, our BDM team toured the country to deliver a series of educational workshops designed to help brokers understand the changes on the horizon and how they would need to adapt their own businesses going forward.
“The sessions reached more than 4,000 intermediaries across the UK and provided such positive feedback that we hit the road again to talk through the PRA changes last year.
“We continue to work closely with brokers to highlight the importance of getting things right up front, and any broader work happening across the market to help improve accuracy of income disclosure will help maintain a healthier and more sustainable market.”
The lender position
Lenders and brokers both have responsibility for reporting possible transgressions where they believe landlords are not being upfront.
Chris Maggs, commercial manager at Accord Mortgages Buy to Let, said: “Ultimately, it is a broker’s prerogative to review a buy-to-let client’s tax.
“As a responsible lender we play our part by basing our lending affordability on landlords being higher rate tax payers to ensure they can comfortably repay their mortgage.
“We would encourage landlords to seek advice from a tax expert.
“Given the complexity and variety of different circumstances that landlords may have, a tax adviser can navigate them through the recent tax relief changes to see if it impacts them.”