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Government Issue Response To Tax Relief Petition

Government Issue Response To Tax Relief Petition

Government Issue Muted Response To Tax Relief Petition

The Government has published a response to the online petition that opposes the proposals to change the amount of tax relief on buy to let mortgages announced by the Chancellor, George Osborne, in the post election summer budget.

From April 2017 onwards landlords will only be able to claim the basic rate tax relief rather than the higher rate tax relief on buy to let mortgage payments. It is widely feared that the move will severely affect the profitability of the private rented sector (PRS).

The online petition to reverse the planned tax restrictions on individual landlords has attracted more than 23,600 signatures since being posted.

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Bank of England's Funding For Lending Scheme Beginning To Have Effect

Bank of England’s Funding For Lending Scheme Beginning To Have Effect

The £80 Billion (GBP) Funding for Lending Scheme (FLS), launched in August by the Bank of England (BoE) and HM Treasury, is starting to show signs of having a positive effect.

The multi Billion pound scheme designed to unclog the flow of credit to the UK’s residential homebuyers is having the desired impact as official figures show an upturn in mortgage approvals.

The Funding for Lending Scheme (FLS) makes money available to banks on the condition they pass it on to businesses and households in the form of cheaper loans and mortgages.

The Bank of England have stated that the number of loans approved for residential property purchases rose by 2,103 to 50,024 in September 2012 and the number of loans approved for re-mortgaging increased by 1,860 to 28,343.

Meanwhile, unsecured consumer credit has also increased by £1.2 Billion (GBP) in September 2012, the sharpest rise since February 2008, including an increase of £307 Million (GBP) in credit card borrowing while the remaining £900 Million (GBP) came from overdrafts and unsecured personal loans.

Borrowers have faced even tougher times trying to take out a mortgage in recent months as lenders tightened their lending criteria even further, causing a drop in the proportion of mortgages approved.

The average interest rate on new mortgages also fell slightly, from 3.84% to 3.77%, offering some hope that the recent rise in borrowing costs may also be starting to ease.

Governor of the Bank of England, Sir Mervyn King, said that “More than 20 banking groups, including the five largest lenders in the UK, have signed up to the Funding for Lending Scheme, while funding costs have fallen by around one percentage point”.

However, Sir Mervyn warned the initiative was temporary and lenders would have to accept further losses if normal banking services are ever to make a return.

The reductions in borrowing rates have primarily been aimed at households taking out mortgages with low Loan-To-Value (LTV) mortgages. So they may not help first-time buyers (FTBs) much.

As mentioned last week, borrowers are still faced with some degree of uncertainty when looking for mortgages or credit as despite all the positive noises made by the BoE and the Government, banks are still fairly reluctant to lend.
Read last week’s top story here.

The simplest solution may be to become your own bank!

Europe want control of UK mortgage lending

European Union Want To Regulate UK Buy To Let Mortgages

Eurocrats no longer concerned with the current Eurozone financial crisis, are sticking their noses into the UK Buy-To-Let mortgage market, with the proposal of a new EU Directive on credit agreements relating to residential property, formerly known as responsible lending and borrowing.

UK Landlords who had been investing in property prior to the 2007 credit crunch have witnessed the dramatic fall in the number of buy-to-let mortgage products made available since the peak of the market in July 2007.

Today (NOV 2011), investors only have access to a paltry 15% of the 3648 buy-to-let mortgage products that were available before the full impact of the credit crunch.

Now, to make matters worse, the European Union want some form of control for the UK Buy-To-Let mortgage market, as part of their proposed directive on credit agreements, reducing the already limited range of UK BTL mortgage products available still further.

The EU has set out plans to include UK Buy-To-Let mortgages with this regulation, changing the way property investors and landlords are assessed by lenders for their BTL mortgage loan.

Currently in the UK, the affordability of a Buy-To-Let mortgage is measured individually, by assessing the rent generated by each property against financing costs.

Typically a mortgage would be considered affordable by the lender if the gross rent covered between 120 – 135% of the finance cost of the mortgage.

This excess cover is meant to ensure that even if the interest rate rises or the landlord suffers a rental void they are still be able meet their mortgage obligations in the medium term.

In general it is a sensible system that aligns the affordability of the finance to the cash generative qualities of each investment property.

It also allows landlords on modest incomes to be able to purchase a property without having to rely on a substantial personal income to prove they can manage their investment.

This method of measuring affordability was only introduced in the mid 1990’s thanks to a number of lenders getting together to introduce the Buy-To-Let initiative to the property investing public.

Now, Europe wants us thrown back into the pre BTL lending dark ages.

The European Directive proposes that BTL lending will be regulated in the same way that residential lending is at present.

Under the new proposals, lenders will no longer be allowed to take into account rental income when assessing the affordability of a buy-to-let loan. This would have massive implications for the 1.3 million small landlords, many of which could face difficulties in refinancing their loans under the revised criteria.

The proposals are to be voted on in early 2012 and would become law by 2013 but who is the legislation trying to protect?

The latest figures from the UK buy-to-let mortgage market show that the current system is actually resulting in a lower rate of arrears on buy-to-let loans than on residential loans. (Currently 2.14% compared to 1.91% for buy-to-let loans).

These new European directives go against current UK thinking, with the Council of Mortgage Lenders, (CML) against regulation and institutions such as the Building Society Association are completely against the new European proposals. Even the UK Treasury examined the need for Buy To Let regulation 2 years ago and decided against taking any action.

The new European Union mortgage directive is primarily concerned with the protection of consumers and including buy-to-let is unjustified.

A buy-to-let mortgage is a commercial transaction and most landlords have enough knowledge and experience to make business decisions without protection from the law and without evidence of detriment to the consumer it is unnecessary to impose such a limiting European regulation.

 

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