Our policy on rental income is changing
 
With tax relief on mortgage interest being phased out gradually since April 2017, landlords have had to change the way they declare their income. 
 
From 1 April 2021, landlords will no longer be able to deduct any of their mortgage expenses from their rental income to reduce their tax bill. However, a landlord’s entire interest payment will qualify for a 20% Mortgage Interest Relief instead. 
 
These changes mean that any rental income that applicants receive will be shown differently on their SA302 documents.
 
What could this mean for your applicant? 
 
The good news is that whilst some lenders choose not to accept rental income, we will continue to accept it. However, we are reviewing our policy on the way we can use land and property income for owner occupied mortgages for new applications. 
 
As a result of these changes from April 2021, tax relief is given as a reduction in tax liability instead of a reduction to taxable income. This means landlords will have to declare all of their rental income, pay income tax on the full amount, and then claim back a percentage of this as a credit. This will alter how we can assess income shown on SA302s.
 
On an applicant’s SA302, the profit from UK land and property is shown as the net income after all deductions apart from those for the mortgage costs of the buy to let. From 1 April 2021, the usable income we'll be able to accept will be calculated as the profit from land and property on the SA302 after removing the disallowable finance costs.

If you have any cases using land and property income or any queries on what rental income can be used for affordability purposes, please contact your BDM. If you don’t have a BDM in your area, you can contact our dedicated Mortgage Desk.