Your accounts won’t be worth the paper they are written on after 2021

by Readers Question

14:40 PM, 30th November 2016
About 2 years ago

Your accounts won’t be worth the paper they are written on after 2021

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Your accounts won’t be worth the paper they are written on after 2021

As anyone considered what will happen when a landlord who can ill afford to incorporate goes to his bank or any other lender after 2021 to borrow money. waste paper

Lets say for example the landlord has always made a profit of £30k but rises to £60k after 2021 based on the new tax regime.

The conversation will go something like this.

Bank manager – Well done Mr Holmes you have done really well over the last five years doubling your profits.

Landlord – Thanks very much.

BM – Are you a landlord

LL – Yes that’s correct.

BM – Oh, we have a problem. Are these doubling of profits simply down to the government changing the tax rules.

LL – Yes that’s right, but my net profit of £60k is official and has been submitted and accepted by HMRC and is therefore correct.

BM – Your right of course, but we are aware you have other outgoings of mortgage interest which we will now have to deduct from your net profit. Although the government don’t recognise your payments of interest to mortgage lenders we have to. The assets versus liabilities test will not change. Sorry we can’t help you.

Although this was very much tongue in cheek the serious question is how will all lenders assess our affordability to borrow money between 2017 and 2021 and beyond.

I would very much like to know.

Tyrone



Comments

Neil Patterson

14:45 PM, 30th November 2016
About 2 years ago

Good Point Tyrone

Your profits are not your profits!

However, lenders will not be easily fooled by this and under new PRA rules stress testing has already and will increase to a minimum of 145% interest cover at a notional 5.5% for all BTL loans except 5 year or longer fixed rates.

Plus they will likely instigate a more residential approach to assessing income in the form of some kind of budget planner backed up with bank statement.


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