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Landlord confidence returning as buy-to-let lending to limited companies soars

Landlord confidence is now at its highest in a year, as a growing number of buy-to-let investors seek to overcome recent government interventions in the market by making mortgage applications via limited companies, according to a new report.

Following an increase in the rate of stamp duty payable on buy-to-let acquisitions, and with a phased reduction in income tax relief available on rental income due to start in April 2017, landlord confidence has been low throughout the course of 2016.

But according to the latest edition of Kent Reliance’s Buy to Let Britain report, more than half - 53% - of buy-to-let landlords are now confident over the prospects for their portfolios.

The latest survey of 900 property investors, run in association with BDRC Continental, represents a marked recovery from the second quarter of the year, when confidence hit a record low (39%) following the introduction of the 3% stamp duty surcharge for those acquiring additional homes, including buy-to-let properties. 

An increasing number of buy-to-let landlords are taking action to mitigate the additional tax costs they will face when tax relief is lowered on mortgage interest payments for individuals by turning towards incorporation, and borrowing through a company structure, as finance costs can still be offset against rental income.

Kent Reliance’s analysis shows that there have already been more than 100,000 limited company loans issued in the first nine months of the year, double the total amount in the whole of 2015, and many analysts believe that demand for this type of arrangement is likely to intensify as the tax changes bite.

Some 11% of landlords state they have already incorporated, or have moved holdings to a lower-rate-tax-paying spouse or partner to limit their tax exposure, while a further 25% are considering doing so; this alone would account for over half a  million landlords nationwide making the move.

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 forthcoming tax changes are also placing upward pressure on rents, with the average rent in Great Britain having hit an all-time high £881 per month. 

Rents are likely to increase further in the coming months, with a third of landlords expecting to increase rents in the next six months alone, by an average of 5.4% - equivalent £571 per year for households, partly to offset higher taxes, but also because tenant demand is growing.

Andy Golding, chief executive of OneSavings Bank, said: “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.”

Golding fears that the raft of recent measures aimed at the buy-to-let sector singularly sought to increase home ownership levels will, somewhat ironically, achieve the opposite, with even greater upward pressure on rents combined with the prospect of declining real incomes likely to stretch affordability even further.

He added: “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.

“Only through a substantive and long-term building programme across all tenures will we see an end to escalating house prices and rents. The chancellor has moved to provide more support for housebuilding, but it is not yet enough to see the step-change in supply that we need.”

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