Landlords could be further hit following recent Budget announcements, experts believe, with aspiring first-time buyers facing a possible knock-on effect.
Although the Budget is largely seen as being neutral to the mortgage market, some parts of the chancellor’s report gave landlords reason for concern.
One area that could hit landlords is that the chancellor will slash the amount of dividends that can be paid tax-free.
Together sales director Gary Bailey says the reduction in the dividend allowance from £5,000 to £2,000, together with the (now scrapped) Government plans to raise National Insurance class 4 for the self-employed, “could lead to a stagnation of the housing market, given that the private rented sector is a key provider of housing in the UK.”
Mortgages for Business financ director Simon Whittaker says this will affect buy-to-let landlords, but will spur more of them into setting up limited companies.
He says: “While the reduction in the dividend allowance will increase the tax cost in extracting buy-to-let profits from a limited company and as such is unwelcome, buy-to-let landlords using a limited company will continue to be taxed on profit.
Contrast this with the situation for individual landlords in buy-to-let who are taxed on turnover, less costs of management, and the continuing appeal of the limited company route is evident.”
Some landlords were also concerned that the chancellor would crack down on a recent trend for many to form limited companies to avoid tax.
Chancellor Philip Hammond said in his Budget speech: “We must ensure that our corporate tax regime does not encourage people across the economy to form companies simply to reduce tax liabilities, pushing the burden of financing our public services onto others.”
A Residential Landlords Association spokesman says making incorporating less appealing means landlords could switch to providing short-term holiday lets or else leave the market altogether.
National Landlords Association head of policy Chris Norris says: “We are concerned, but not overly concerned at the moment. We don’t think we are directly in the firing line.”
Mortgages for Business chief executive David Whittaker says the chancellor is not targeting landlords with the announcement.
He says: “This isn’t about landlords, it’s about people who artificially manufacture their employment contracts so as not to pay their fair share of tax. While landlords might perceive they get caught in it, I think he’s lost interest in landlords.”
Fleet Mortgages chief executive Bob Young says: “You never know with HMRC. But I think they have a lot to go for in other tax avoidance measures before coming back for this one, as it’s relatively small beer.”
But Young adds that there is still some industry concern that landlords using limited companies could be scrutinised.
He says: “I think a few lenders and brokers have been looking at whether the Government will look at the formation of limited companies and say ‘this is just to get around a tax issue’.
“HMRC will be looking very closely to say: ‘Do you actually run this business? Or is this just a shell company that is set up for tax purposes?’ If you listen to some lenders, they are already making that into a story.”