Tax increases in the buy-to-let market have generated record demand for mortgages via companies in 2016, and will push up rents further, according to the fourth edition of Kent Reliance’s Buy To Let Britain report.
Buy-to-let lending to limited companies soared to nearly 38,000 loans in Q1 2016, higher than the total for the whole of 2014, new figures reveal.
The total of loans to limited companies is expected to reach nearly 100,000 by the end of the year.
Landlords have flocked to incorporate in order to mitigate the impact of the tax changes announced in the Summer Budget, which lowers the tax relief for mortgage interest payments for landlords from April 2017.
Borrowing through a company structure means investors are taxed on profits at lower corporation tax rates, and can offset all finance costs against rental income.
Kent Reliance’s data shows mortgage applications via limited companies increased by over 80 per cent in 2015 compared to 2014. In total, limited company loans accounted for more than one in five buy to let mortgages last year, nearly 55,000 across the whole buy-to-let market.
This demand has intensified in 2016. In the first three months of the year, just under 38,000 loans were issued to limited companies, nearly four times the number issued in the same period in 2015.
Alongside landlords’ increasing demand for this type of finance, the overall numbers were supported by increased buy-to-let transactions in March as landlords hurried to complete purchases ahead of the introduction of a 3 per cent stamp duty surcharge in April.
The rush to incorporate is unlikely to subside. According to a survey of over 1,000 property investors, run in association with BDRC Continental, a third of landlords are considering this move, and 7 per cent have already done so.
Kent Reliance estimates that limited company loans will total 98,400 in 2016, nearly 40 per cent of the total number of buy-to-let loans, and nearly three times its share of the market in 2014.
Kent Reliance believes that the tax changes announced are also directly pushing up rents for tenants, as landlords pass on the higher costs heaped on them by new taxes and regulations.
In the last year, the average monthly rent has already risen by 3.5 per cent to £872.
Rents are set to rise further. Four in ten landlords expect to raise rents in the next six months, by an average of 5.6 per cent (around £49 per month).
Andy Golding, chief executive of OneSavings Bank, which trades under the Kent Reliance and InterBay brands in buy-to-let, says: “The buy to let market now sits firmly in the crosshairs of both politicians and regulators, and we are seeing landlords react. “Thousands hurried purchases to beat the stamp duty deadline, and the popularity of limited companies is soaring as investors seek to reduce tax exposure.
“But it is tenants who are feeling the real brunt. Rents are rising, and landlords will increase them further as they pass on the increased cost of running their businesses. Far from supporting tenants, recent intervention will see them bear a heavier financial burden.”