Buy to let mortgage lenders are declining loans for landlords they suspect of avoiding tax, a leading lender has revealed.
Paragon, a specialist property investment lender, fears beneficial interest mortgages may break HM Revenue & Customs anti-avoidance rules.
Beneficial interest mortgages are when a landlord transfers legal ownership of a rented home to a limited company while retaining control of the rental profits and sale proceeds.
Paragon regional sales manager Tim Sweetman told a Mortgage Solutions mortgage broker forum: “There is a strong debate about if this method could be considered contrived and fall foul of HMRC anti-avoidance legislation.
“Lenders are generally not in favour of this route and are unlikely to give approval. This may not be permitted in mortgage documentation.
“There may be complications if refinancing a property that has been subject to these arrangements.”
Research earlier this year for Paragon revealed only 10 from 65 buy to let lenders would sanction a loan if the applicant had set up a beneficial interest tax strategy.
Letting agents quit market
Letting agents are quitting the high street as government regulation and rule changes start to bite, says the Association of Residential Letting Agents (ARLA).
Although agents have told the trade body they have more houses than ever to rent, ARLA believes this is due to firms selling up or merging in advance of the tenant fee ban that starts on June 1.
“Whilst it’s positive that the number of properties available per branch hit a record high, this may be the first signs of the industry consolidating ahead of the tenant fees ban as agents either sell-up or merge. This, coupled with landlords exiting the market and rent costs continuing to rise, means the overall picture is far from positive for renters,” said ARLA CEO David Cox.
“The full effects of the tenant fees ban have not yet been felt, and now the government is introducing yet more new legislation which will deter new landlords from entering the market, such as abolishing Section 21.
“Until we have greater clarity on the changes planned, this news will only increase pressure on the sector and discourage new landlords from investing, meaning rents will only continue to rise for tenants.”
Students win £15,000 rent refund from landlord
A landlord who failed to licence a private rented shared home must refund £15,000 in rent to the student tenants.
After the landlord was convicted of letting the home without a licence, Leeds City Council helped the students win a rent repayment order at court.
“If private individuals are going to profit off property, we’ve at least got to hold them accountable when they do bad things. It wasn’t a personal vendetta against the landlord – he just broke the rules,” said one of the students, Ben Leonard, 23.