Among accidental landlords, who rent out properties due to unforeseen circumstances such as being unable to sell, 71% of applicants were uninformed about the shifts in mortgage legislation, according to a survey among brokers by Direct Line for Business.
The MCD could impact their ability to secure a mortgage, as accidental landlords with one or two properties may not be able to pass the expected new affordability tests.
Some 49% of existing landlords looking to expand their portfolio were unaware of changes to either tax relief or consumer buy-to-let regulation, compared to 47% among new landlords aiming to create a portfolio, and 56% among new landlords looking for a single investment property.
In the Summer Budget, the Chancellor announced tax relief on mortgage interest rates for landlords will be cut from the current highest level of 45% to the 20% base rate.
Simon Collins, product technical manager at John Charcol, said the vast majority of buy-to-let mortgage applicants his company deals with may not know all the details, but are aware that changes are being made.
Those who don’t know are being made aware before applying by being asked questions such as whether or not a limited company structure would be appropriate for purchases, he added.
Collins said: “This is another potential mis-selling scandal. If you don’t ask questions such as how many properties they’re looking to add to their portfolio, if this is the first one, if they’ve considered a limited company structure, if they’ve taken proper tax advice and so forth, it will come back and bite you in the backside in a few years’ time.
“Clients will come back to advisers if they’ve lost money or won’t get as much as they thought when selling up.”
Jane Simpson, managing director of The Business Mortgage Company (TBMC), said those who apply through her company know about the changes.
However, she added that many who contact the company with future plans of purchasing buy-to-lets are less aware, particularly regarding how their personal tax situations will be affected.
Nick Breton, head of Direct Line for Business, said: “The new EU legislation on mortgages coupled with the government’s increase in buy-to-let taxation could significantly alter the buy-to-let market, so we would encourage any mortgage applicants to think carefully about the new law and how this could impact them as a landlord.”
Both Collins and Simpson said their firms are actively educating their clients on what is happening.
Simpson said TBMC has produced a flyer about taxation, which will be given to clients asking about tax or those who the sales team consider may benefit from speaking to a tax adviser.
Collins said: “Brokers have got to be in the business of educating people now. That’s why people come to us. If it was that easy, they could do it themselves. They need help and advice, and we have got to give it – education, please.”