There was a rise in confidence among landlords in Q3, with 54 per cent expressing a positive outlook for their investments, up from 39 per cent in the second quarter.
However, the Kent Reliance Buy to Let Britain report found that landlords will increase rents further in 2017 as investors mitigate costs of tax changes.
The latest edition of the report carried out with BDRC Continental surveyed 900 property investors and found that landlords are turning to limited company loans, with 100,000 issued in the first nine months of the year, double the total for 2015.
The survey found that 11 per cent of landlord participants had already incorporated, or moved holdings to a lower-rate tax paying spouse or partner to limit their tax exposure, while a further 25 per cent are considering doing so in advance of the forthcoming changes to BTL tax interest relief.
Kent Reliance estimates limited company lending in 2016 could total 143,000 for the year as a whole, rising to 163,000 in 2017.
Following the ARLA figures, which found that rents hit an 18-month high in September, the report predicts that rents are likely to accelerate further in 2017 as a third of landlord respondents expected to increase rents in the next 6 months alone by an average of 5.4 per cent – equivalent £571 per year for households.
Two thirds cite higher future taxes, and 43 per cent the strength of tenant demand. Indeed, twice as many landlords are seeing an increase in tenant demand as the number seeing a decline. The recent budget announcement to ban letting fees, while providing a welcome reduction in tenants’ upfront costs, will see any additional costs for landlords factored into rents.
Extra pressure will also come from the Prudential Regulation Authority’s new underwriting standards, due for implementation next year for, Kent Reliance believe, forecasting that rents will rise by an average of 3 per cent.
OneSavings Bank chief executive Andy Golding says: “Property investors have had to roll with punches in 2016. The stamp duty levy clearly took its toll on the market, and combined with the forthcoming tax changes, landlords have felt at the mercy of a political agenda. But 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.
“There is still more to come for the buy to let sector next year. The PRA’s new underwriting standards are due to be implemented, the tax changes begin to take effect, and there is yet more potential intervention in the form of the FPC’s new powers. If the cumulative effect of constant change undermines the expansion of rental properties, this will simply exacerbate the housing crisis.
“The raft of recent measures aimed at the buy to let sector singularly sought to increase home ownership levels. Ironically, they will achieve the opposite, with even greater upward pressure on rents combined with the prospect of declining real incomes likely to stretch affordability even further. 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 house building, but it is not yet enough to see the step-change in supply that we need.”