The phasing out of mortgage interest relief from last April will soon start to make it harder for buy-to-let landlords to make a profit, especially those who have acquired property with a buy-to-let mortgage since 2014, according to new research.
Fresh analysis by ratings agency Standard and Poor's (S&P) Global shows that 62.5% of landlords who acquired property with a buy-to-let mortgage between 2014 and 2016 are likely to make a net loss by the time mortgage interest relief has been withdrawn altogether in 2021.
S&P estimate that the change will reduce profits by around a fifth and have the greatest impact on recent buy-to-let borrowers in the South East and London.
But buy-to-let landlords in the north of England have also been identified as being at serious risk due to low levels of rental growth in both the North East and North West of England in recent years.
S&P credit analyst Alastair Bigley, who conducted extensive research for the report, said: “The proportions of loss-making loans will increase as the tax system becomes less generous between now and 2021.
“We calculated that, if rents cannot be increased, 60.4% of the loans originated in the 2014, 2015, and 2016 vintages will become loss-making compared to the sample average of 4.0% by the time the tax changes become fully effective.
“We view a fire sale scenario, where large amounts of BTL property is placed for sale, which in turn could affect the wider housing market quickly and disproportionately, as unlikely.
“We believe the phased introduction of the full impact of changes in income tax treatments will give borrowers time to adjust their strategies to the new landscape.”