Landlords are increasing rents and applying for mortgages via limited companies in a bid to boost profits amid the tax clampdown, new research suggests.
The number of mortgage applications by landlords via limited companies surged more than 80 per cent last year, according to lender Kent Reliance.
It said limited company loans accounted for more than one in five buy-to-let mortgages last year, nearly 55,000 across the buy-to-let market.
It is the latest evidence of landlords seeking to recoup their losses amid the Chancellor’s tax clampdown, which has hit both stamp duty and the amount of tax relief that property investors can claim.
The research found a third of landlords are considering applying for a mortgage via a limited company, while 7 per cent have already done so.
It is perhaps unsurprising given the more favourable tax environment for landlords obtaining a mortgage through a limited company. However, landlords considering transferring their existing property into a corporate structure will incur additional costs, meaning they may fail to recoup their costs for many years.
Kent Reliance predicts that the number of limited company loans taken out by landlords will reach 98,400 this year, almost 40 per cent of the total number of buy-to-let loans and nearly three times its share of the market in 2014.
It also suggested that landlords are pushing rents to plug their profit shortfalls stemming from the forthcoming cut in tax relief.
Previously all mortgage interest could be offset against rental income, with landlords only paying income tax at their marginal rate on the profit in-between.
But from April 2017, the tax position will start to shift towards mortgage interest relief finally being capped at the equivalent of basic rate tax from 2020 – currently 20 per cent.
Kent Reliance said average rents have risen 3.5 per cent to £872 a month and look set to continuing climbing as four in 10 landlords expect to increase costs in the next six months by an average of 5.6 per cent. This equates to an average increase of £49 a month for tenants.
Three quarters of landlords increasing rents blame the upcoming reduction in mortgage tax relief, while four in 10 highlight strengthening tenant demand, according to the research.
It follows the introduction of a 3 per cent stamp duty surcharge on buy-to-let property purchases in April.
Andy Golding, chief executive of OneSavings Bank, which trades under the Kent Reliance and InterBay brands in buy-to-let, said: ‘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.
‘Increasing landlords’ tax bills won’t alter the root cause of the UK’s housing crisis. As long as the demand for homes every year far outweighs the number of new houses, the only way to reduce the cost of housing in this country for tenants and first-timers alike is to build more. We need to see a paradigm shift, moving the focus from sustaining demand to expanding supply in all tenures.’
SOURCE: Daily Mail
