TaxApr 6 2017

Remortgaging eyed to pay down buy-to-let debt

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Remortgaging eyed to pay down buy-to-let debt

Advisers have not seen large numbers of people looking to remortgage their homes to pay down buy-to-let charges – but some say it could become more common.

As of today (6 April), higher-rate taxpayers are no longer be eligible for tax relief on mortgage interest (it will be capped at the basic rate of 20 per cent), and from 2020 they will be unable to offset all their mortgage interest against rental income before calculating tax due.

The changes to legislation have been designed to restrict the growth of the amateur landlord market and free up properties for residential use.

But with residential mortgage rates significantly lower than buy-to-let rates, there have been reports of people borrowing money against their homes to pay down their buy-to-let mortgage – a move that can come with added risks.

Mike Richards, director at London-based Mortgage Concepts Associates, told FTAdviser: “Residential borrowing is a lot lower, so if someone is borrowing at 1.5 per cent to pay down a loan at 3 or 4 per cent, it may make sense to go down to a level where they can cope.

“But we have not seen anything like this yet, and it is not something we would probably see - it is more an accountancy thing.”

Paul Dorward, adviser at PAD Financial in London, added: “Personally, I have not seen a lot of it, but we are getting a lot of questions from people looking to review their overall debt structure. 

“We have had people enquire about limited companies, but we have not seen specific requests to raise money on residential.”

Liz Syms, chief executive at Essex-based Connect Mortgages, said the move would be an option for ‘dinner-party landlords’ but less appropriate for professionals with a large portfolio of properties.

But while it may look appealing to those facing higher BTL costs, using a residential loan to pay down a buy-to-let mortgage is by no means an ideal solution.

“The down side is they are transferring the risk to their own home – if something goes wrong, they are putting their own home at risk,” Ms Syms added.

“We are not seeing a lot of people doing it. Another strategy can be looking at couples, so if it is held in your name at the moment, you can transfer to your partner and take advantage of tax allowances.”

Georgina Partridge, independent mortgage adviser at Plutus Wealth Management in London, commented: “I do think a lot of clients do not appreciate what these changes [to tax relief] mean.

“Landlords will need to put more cash in or borrow money elsewhere, but borrowing on residential needs to fit their lending criteria as well.

“It may be something that picks up in the next month or so when people come to remortgage.”

simon.allin@ft.com