11:10 AM, 4th December 2015, About 7 years ago 2
Kent Reliance’s Buy to Let Britain Report says radical changes to the tax treatment of landlords have already triggered a surge in landlords borrowing through companies.
The report summarises:
• 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
• Importance of PRS has grown; sector now worth £1.2 trillion, with 5 million households renting in England alone
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.
For the whole buy to let market this means 56,800 buy to let loans will be issued to companies in 2016, conservatively assuming total lending doesn’t grow. This is an increase of over a fifth compared to the estimated total for 2015 (46,700) and up 90% on 2014. Following the Autumn Statement, the Treasury is consulting on whether corporate entities with over 15 properties would be excluded from the newly announced stamp duty surcharge, an exemption that will add further incentives for professional landlords to incorporate, boosting demand.
The switch to limited companies will not be the only impact of the recent tax changes. The average value of a buy to let property stands at £220,726. The 3% stamp duty charge announced in the Autumn Statement would represent an additional upfront charge of £6,622, which landlords will naturally seek to recoup through rental charges. If a landlord held a property for ten years, spreading this cost over the duration would represent an increase in rent of £55 per month for a tenant. This would support rental inflation which currently stands at 8.3% on an annual basis.