MORE than half of buy-to-let (BTL) loans originated since 2014 will become loss-making by the time recent tax changes become fully effective, a report has warned.
S&P Global Ratings, which analysed 160,000 securitised BTL loans, of which 97 per cent were underwritten between 2002 and 2016, warned that the new tax regime will make BTL viability highly sensitive to rate rises.
In addition to a phased reduction in tax relief, landlords with four or more mortgaged properties are subject to much tougher affordability assessments.
S&P Global Ratings estimated that by 2021, only 80p of any £1 of interest cost suffered by investors in servicing a loan will be tax-deductible.
Overall, the tax changes will lower the post-tax profitability of almost all BTL loans, it said.
“We calculated that post-tax profitability will reduce by 21 per cent, on average, and the proportions of loss-making loans will increase as the tax system becomes less generous between now and 2021,” said residential mortgage backed securities (RMBS) credit analyst Alastair Bigley.
Borrowers of recently originated BTL loans will be most affected, the credit ratings agency stated.
It added that a “fire sale” scenario, where large amounts of BTL property is placed for sale, is unlikely.
“Because the changes will be phased in, borrowers should have time to adjust their stportfolio rategies to the new landscape,” Bigley explained.
It comes after research found three-quarters of so-called portfolio landlords – those with several BTL mortgages – have found it harder to secure mortgages since tougher lending rules were introduced last year.