Taylor Scott International News
Radical changes to the tax for buy to let landlords in the UK have already triggered a surge in borrowing with the latest announced last week set to have a similar effect, a new report suggests. The changes announced in the Budget in the summer to lower the tax relief for mortgage interest payments for landlords from April 2017, has already caused an increase in the number of landlords seeking to create limited companies. According to the Buy to Let Britain report from specialist mortgage lender Kent Reliance this has resulted in applications for incorporation increasing 213% year on year. It says that a quarter of all buy to let mortgage finance is now through limited companies, up 13% on 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 and up 90% on 2014. Following the Autumn Statement, the Treasury is now 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 firm says. 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 and the new 3% stamp duty charge announced in the Autumn Statement would represent an additional upfront charge of £6,622. The firm says that many landlords will naturally seek to recoup this through rental charges. If a landlord held a property for 10 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. Andy Golding, chief executive of OneSavings Bank, which trades under the Kent Reliance and InterBay brands, said that the changes to the tax treatment in the last six months will bring unintended consequences. ‘First, the rush to put properties inside a limited company will be sustained, especially if larger scale investors are indeed exempted from the new stamp duty surcharge. Secondly, the buy to let market will see activity hit overdrive between now and April as landlords seek to beat the stamp duty deadline,’ he explained. ‘Smaller scale investors are now more likely to think twice before investing and I see that as a good thing. However, in the longer term, it is tenants who will pay the price of the chancellor’s tax raid on buy to let, as landlords will recoup increased costs through rent increases. Ultimately, the move will do little to help tenants save for a deposit on a home of their own. Making rented homes more expensive was surely not the Chancellor’s intention,’ he pointed out. He believes that… Taylor Scott International
Taylor Scott International, Taylor Scott
