New research has revealed that government changes affecting the taxation of landlords has led to record demand for mortgages via companies and will push rents up.
According to Kent Reliance, buy-to-let lending to limited companies increased by 80% between 2014 to 2015.
In the first three months of this year, around 38,000 loans were issued to limited companies, nearly four times the number issued in the same period in 2015. The number of loans to limited companies is expected to hit 100,000 by the end of the year.
In last year’s Summer Budget, George Osborne announced that the basic rate of tax relief landlords can claim on properties is set to fall to 20% from April 2017.
Kent Reliance found that a large number of landlords are incorporating into limited companies in order to mitigate the impact of the change. Borrowing through a company structure means investors are taxed on profits at lower corporation tax rates and can offset all finance costs against rental income.
A 3% stamp duty increase also came into effect on 1 April as part of the government’s attempt to curb the buy-to-let market and free up property for first-time buyers.
The research found that rents are also rising as landlords pass on the higher costs of new taxes and regulations to tenants.
The average monthly rent has already risen by 3.5% to £872 in the last year. Four in 10 landlords expect to raise rents in the next six months by an average of 5.6% (£49 per month), with three quarters of landlords increasing rents doing it to compensate for the reduction in mortgage tax relief.
Andy Golding, chief executive of OneSavings Bank, which trades under the Kent Reliance said the buy-to-let market was “firmly in the crosshairs of both politicians and regulators” and that landlords were reacting.
“Thousands hurried purchases to beat the stamp duty deadline, and the popularity of limited companies is soaring as investors seek to reduce tax exposure. But it is tenants who are feeling the real brunt. Rents are rising, and landlords will increase them further as they pass on the increased cost of running their businesses. Far from supporting tenants, recent intervention will see them bear a heavier financial burden.
“Increasing landlords’ tax bills won’t alter the root cause of the UK’s housing crisis. As long as the demand for homes every year far outweighs the number of new houses, the only way to reduce the cost of housing in this country for tenants and first-timers alike is to build more. We need to see a paradigm shift, moving the focus from sustaining demand to expanding supply in all tenures.”
