New research from mortgage lender Kent Reliance has found that landlords are setting up limited companies and hiking rents to limit the impact of next year’s buy-to-let tax relief changes.
According to its Buy to Let Britain report, more than 100,000 limited company loans were issued in the first nine months of this year – double the total amount in the whole of 2015.
One in 10 landlords have already incorporated or moved their holdings to a lower-rate-tax-paying spouse or partner to limit their tax exposure, while one in four are considering doing so.
Kent Reliance estimates limited company lending in 2016 could total 143,000 for the year as a whole, rising to 163,000 in 2017.
The basic rate of tax relief landlords can claim on properties is set to fall to 20% from April 2017.
This is due to be phased in over a four-year period starting from April 2017. Landlords are currently able to claim tax relief on the top rate of tax of up to 45%.
Many buy-to-let investors are now considering leaving the sector as they fear letting out a property will become far less profitable when the reforms come into force in April 2017.
Andy Golding, chief executive of OneSavings Bank, which trades under the Kent Reliance and InterBay brands in buy-to-let, said: “Property investors have had to roll with punches in 2016. The stamp duty levy clearly took its toll on the market, and combined with the forthcoming tax changes, landlords have felt at the mercy of a political agenda. But confidence is returning as landlords take action to limit the damage to their finances. The use of limited companies is soaring, and rents are increasing, even after one of the biggest surges in rental supply in recent history.
“There is still more to come for the buy to let sector next year. The PRA’s new underwriting standards are due to be implemented, the tax changes begin to take effect, and there is yet more potential intervention in the form of the FPC’s new powers. If the cumulative effect of constant change undermines the expansion of rental properties, this will simply exacerbate the housing crisis.”
Rent rises
The forthcoming tax changes are also driving up rents as landlords look to recoup losses.
The average rent in Great Britain has hit a record high of £881 per month, despite the supply of rental property homes hitting an 18-month high in the same period, a knock on effect of the rush to beat the stamp duty hike. Annual rental inflation slowed a little in the last quarter, but even so rents still rose by 2.4%.
Kent Reliance said that rent rises were likely to accelerate in 2017, with a third of landlords expected to increase rents in the next 6 months by an average of 5.4% – equivalent £571 per year for households.
“The raft of recent measures aimed at the buy to let sector singularly sought to increase home ownership levels. Ironically, they will achieve the opposite, with even greater upward pressure on rents combined with the prospect of declining real incomes likely to stretch affordability even further,” said Golding.
“We have warned all along that the tax changes will push up rents, and this is already starting to happen. The ban on often unjustifiably high letting fees is well intentioned. However, it also means landlords could pass higher costs onto tenants, doing little to bring down the overall cost of renting,” he added.
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Did the previous chancellor do this deliberately with the view to step down and screw the market and as if to say, I was doing a better job than the current one is?
I think the present chancellor should turn back the changes in the spring budget. I feel he missed the opportunity in autumn budget.