PRA stress tests and the benefits of incorporation – With Kate Faulkner - Kate Faulkner discusses some topical BTL issues

Written by Brooklandscf. Posted in News

Malcolm and Kate
Kate Faulkner discusses some topical BTL issues with Brooklands Commercial Finance

The discussions revolved around a number of key issues impacting the BTL market and a common thread that kept appearing was the need for landlords to get good quality tax advice. This article covers the first of a series of 4 discussions around today’s BTL market.

Withdrawal of Interest relief

Up until 2016/17 tax year landlords could deduct mortgage interest and other allowable costs from their rental income, before calculating their tax liability. From 6 April 2020, tax relief will be restricted to the basic rate of income tax

The table below shows how this will impact on a higher-rate taxpaying landlord receiving £950 rent a month and paying £600 towards their mortgage.  

Mortgage tax relief for property with £950 rent and £600 mortgage per month

Tax year

Proportion of mortgage interest deductible under previous system

Proportion of mortgage interest qualifying for 20% tax credit under new system

Tax bill

Post-tax and mortgage rental income

Prior to April 2017




















From April 2020





Kate - So, the impact of withdrawal of the interest relief has been, I think, quite devastating. The problem with property and with people is, it doesn't matter even if it affects them, it changes their mindset. We know that the biggest impact that it's had is down south, there's been a massive drop in the number of people, taking mortgages for buy to let’s. However the cash purchases are carrying on. The problem with that is, where we have got our harshest issue, as far as stock is concerned is London and the South East. The Ministry of Housing, Communities and Local Government, stated about eighteen months ago, that 3,800 landlords are being lost to the sector every month. They may go, 'That's brilliant. We're putting them all into home ownership,' but my view is, if you're a tenant, you've just lost 50,000 homes this year, and potentially another 50k the following year, and more after that, as the impact bites, up until, 2021. I think it's been quite devastating, and I think tenants are the ones that will suffer.

Malcolm – Yes, I agree. The recent regulatory changes for the PRS as well as the tax reforms have put a lot of new entrants off from entering the BTL market and have seen the exit of a number of amateur landlords. If there’s less stock and less choice then rents will go up. It’s a simple matter of supply and demand

  • Rents are now increasing at a faster rate than house prices
  • Average yields have now risen to 4.5%
  • Yields in London are now the highest for 4 years

Kate- I think, people are waiting for the tenant fee ban, which came in on 1st June. I didn't think agents would be able to increase their fees to landlords, because there's so much competition, but actually, a lot of the good agents have. Landlords have accepted it. But, they've increased their rents as a result and again it’s the tenants that suffer.

Further articles will cover the following issues: the impact of the additional 3% stamp duty; the impact of the Prudential Regulation Authority (PRA) stress tests: Benefits of Incorporation; Forecasts and Conclusions

Kate Faulkner

Kate Faulkner is one of the UK’s leading property experts. She is passionate that most of the problems in the residential property market can be solved if the media, industry and government worked together to educate consumers on how to carry out property projects.

Kate regularly features on BBC TV and radio and National Newspaper

To date Kate has written 11 property books

Malcolm Jones

Malcolm Jones is the Founder and Managing Director of Brooklands Commercial Finance. Brooklands is one of the leading Property and Development Finance brokers in the UK. They are directly authorised by the Financial Conduct Authority (FCA) and have access to the whole of the market.They regularly publish articles regarding the availability of finance for the UK property Market.

 How to Organise Houses in Multiple Occupation (HMOs) Finance Checklist
Houses in Multiple Occupancy are a great source of income for landlords, However there are a number of aspects that need to be considered before starting your HMO journey. We have prepared this Checklist in conjuntion with This document will help you identify whether the investment property is in fact a HMO and what steps need to followed if you want to raise a mortgage to acquire or refinance one.


How to Organise Houses in Multiple Occupation (HMOs) Finance Checklist Done


Your property is probably an HMO if:

  • Three or more unrelated people live there, as at least two separate households - for
    example, three single people with their own rooms or two couples each sharing a room

  • The people living there share basic amenities - for example a kitchen and/or a bathroom

Types of HMOs

  • A house split into separate bedsits

  • A shared house or flat, where the sharers are not members of the same family

  • A hostel

  • A bed and breakfast that is not just for holidays

  • Shared accommodation for students

Licence requirement if the property is:-

  • At least three storeys high

  • Has five or more unrelated people living there

  • Has two or more separate households living there

  • Some councils also require other HMOs to be licensed

  • The licence will cover such areas as:-

      • Fire safety

      • Lighting

      • Ventilation

      • Washing facilities

      • Cooking facilities

      • Management standards


  • Determine target market

  • Transport, buses, trains, commuter route

  • Close to a university or hospital

  • Demand and supply in the area


  • Gross yield versus net yield

  • Is your broker FCA regulated?

  • Is your broker a full member of the National Association of Commercial Finance Brokers?

  • Experienced HMO landlord?


  • Bricks & Mortar Value - where a property is valued in accordance with its neighbouring

  • Investment Value - where a property is valued on its investment value or a multiple of
    its income


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