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Chancellor’s buy to let taxes to trigger lending surge as landlords rush to incorporate

By CreditMan Thursday, December 3, 2015

Radical changes to the tax treatment of landlords have already triggered a surge in landlords borrowing through companies, and further changes will follow the Autumn Statement, according to the third edition of Kent Reliance’s Buy To Let Britain report.

The changes announced in the Budget, lowering the tax relief for mortgage interest payments for landlords from April 2017, has already caused an increase in the number of landlords seeking to incorporate. Kent Reliance saw applications from limited companies surge immediately after the July Budget. This has accelerated as landlords absorbed the impact of the tax changes; in September, applications tripled year on year (+213%). One quarter of all buy to let mortgage finance demand is now through limited companies, up from 13% 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 (46,700) and up 90% on 2014. Following the Autumn Statement, the Treasury is 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 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. The 3% stamp duty charge announced in the Autumn Statement would represent an additional upfront charge of £6,622, which landlords will naturally seek to recoup through rental charges. If a landlord held a property for ten 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.

In Great Britain as a whole, there are now 5.6m households living in rented homes, an annual growth rate of 8.4%. England alone has seen the number of privately renting households climb beyond 5 million. This is unlikely to slow in the long term, although in the immediate term, the fierce competition for a rented home may be eased by increased supply as landlords bring forward house purchases ahead of April’s stamp duty rise.

The value of rented homes has also seen brisk growth, climbing 6.5% in September compared to a year ago. As a result of the growing number of properties, and average value, the total value of landlords’ holdings has grown by £171.0bn in the last year to a total of £1.2 trillion by the end of September, a growth rate of 16.0%.

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