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Logically lenders will ultimately have to introduce lending criteria with one formula for basic rate tax payers (i.e. 125% at 5%) and another (i.e. 156% at 5%) for 40% tax payers because the latters’ net rental income will be 80% of that of the formers’.
The reduced relief is being phased in between 2017 and 2020. This move was largely to be expected. Long term buy to let investors might decide to build their portfolio within a limited company structure, although there are financing (fewer lenders) and tax issues to be considered.
Inevitably there will be upward pressure on rents as a result of these changes but no less demand amongst buy to let investors as this type of investment continues to look attractive. The losers here will be tenants. Would-be home buyers should act now to buy, as with buy to let investment continuing to look attractive, prices will continue to rise. A 95% capital and interest mortgage under help to buy should be comparable to current rents payable based on a yield of 5%.