Landlords incorporating to get round buy-to-let tax hikes

Increasing numbers of landlords are looking to get around the mortgage interest relief changes by incorporating, and its tenants who will bear the brunt of extra stamp duty, Kent Reliance has revealed.

The lender’s Buy to Let Britain report, which looks at the sector up to the first quarter of 2016, found that in the first three months of the year, four in ten applications for BTL mortgages have been via limited companies and they expect more than half to use this route by the end of the year.

A fifth of applications in 2015 were through limited companies, compared with 15% in 2014.

Across the whole market, just under 38,000 limited company loans were issued in the period, nearly four times the 10,100 a year ago, according to the report.

Operating through a limited company means mortgage interest relief can still be claimed, but there will still be the extra stamp duty surcharge to pay.

A third of landlords surveyed for the report were considering incorporating and 7% have already done so. Professional landlords with larger portfolios of 20 or more were more likely to incorporate.

But with the rising costs of stamp duty and impending mortgage relief changes, the report finds that tenants, as many predicted, will face increased rents.

The survey of 1,097 landlords also found that 39% expect to raise rents in the next six months by an average of 5.6%, an increase of about £49 per month for tenants. Three-quarters of landlords increasing rents directly blame the changes to mortgage tax relief for doing so, while four in ten highlight strengthening tenant demand.

Despite 59% believing government changes will affect their portfolio, 71% of respondents said property investment was better than other investment options.

By the end of the first quarter, the average total return stood at 13.6%, with a yield of 4.6% and 9% house price inflation – £28,617 in cash terms. Returns were up from 13% a year ago, and 12.6% at the end of 2015.

Overall, Kent Reliance found that monthly rents have increased 3.5% year-on-year to an average of £872 as tenant demand climbed in the last year, with total rent collected by landlords across Great Britain increasing to £4.5billion per month, and a record £53billion in the past year.

The report estimates the number of households in the private rental sector will grow from 5.1m to 5.3m by the end of 2016 and 5.6m by the end of 2017.

Andy Golding, chief executive of Kent Reliance, said: “Driven by a political agenda that prioritises home ownership and a view that buy-to-let is harmful to the UK’s housing market, property investors are seen as the scapegoats for the nation’s housing issues, whilst regulators are turning their attention to the lenders that support the market.

“This constant focus on managing demand does nothing to address the real issue, which remains the lack of supply of new housing.

“However, notwithstanding the various initiatives aimed at curbing buy-to-let, the reality is that the market, and the PRS that it supports, are essential parts of our housing supply.

“It is unfortunate that this is not acknowledged by policy makers, whose actions will primarily affect the tenants who they are arguably aiming to support: the prospect of higher tax on buy-to-let is already pushing up rents.”

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