A report from a mortgage lender has claimed that new taxes on buy-to-let will trigger a lending surge as landlords rush to form companies.
The Buy To Let Britain Report 2016 by Kent Reliance says that radical changes to the tax treatment of landlords will mean more landlords buying property through companies in the future.
The changes announced in the Budget, lowering the tax relief for mortgage interest payments for landlords from April 2017, has already caused an increase in the number of landlords seeking to incorporate.
Kent Reliance saw applications from limited companies surge immediately after the July Budget. This has accelerated as landlords absorbed the impact of the tax changes; in September, applications tripled year-on-year (+213%).
One quarter of all buy-to-let mortgage finance demand is now through limited companies, up from 13% a year ago.
Highlights of the report include:
- Buy to let lending to limited companies doubles to 5,000 per month following Budget announcement.
- Number of loans to limited companies to climb to 56,800 in 2016, up by 90% compared to 2014.
- Stamp duty surcharge announced in Autumn Statement likely to see purchase activity surge before April.
- Tenants likely to feel impact of tax changes as landlords pass on increased costs of running business.
- Additional £6,600 stamp duty cost for average purchase could trigger £55 per month rent rises.
- The importance of the private rented sector has grown. The sector is now worth £1.2 trillion, with 5 million households renting in England alone.
Andy Golding, chief executive of OneSavings Bank, which trades under the Kent Reliance and InterBay brands, said that the changes to the tax treatment in the past six months will bring unintended consequences.
“First, the rush to put properties inside a limited company will be sustained, especially if larger scale investors are indeed exempted from the new stamp duty surcharge. Secondly, the buy-to-let market will see activity hit overdrive between now and April as landlords seek to beat the stamp duty deadline.
“Smaller scale investors are now more likely to think twice before investing and I see that as a good thing. However, in the longer term, it is tenants who will pay the price of the chancellor’s tax raid on buy to let, as landlords will recoup increased costs through rent increases. Ultimately, the move will do little to help tenants save for a deposit on a home of their own. Making rented homes more expensive was surely not the Chancellor’s intention.”