Research from Kent Reliance has shown the changes to the treatment of landlords announced in this year’s summer Budget have triggered a surge in borrowing through companies.
The firm explained that this trend has accelerated since July, as landlords absorbed the impact of the tax changes, with applications tripling year-on-year in September, up 213 per cent.
One quarter of all buy-to-let mortgage finance demand is now through limited companies, up from 13 per cent a year ago.
For the whole buy-to-let market this means that 56,800 buy-to-let loans will be issued to companies in 2016, assuming total lending does not grow. This is an increase of over a fifth, compared to the estimated total for 2015, which was 46,700 and up 90 per cent on 2014.
Kent Reliance noted that 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, further boosting demand.
With the 3 per cent stamp duty charge coming in next spring, there will be an additional upfront charge of £6,622 which landlords will seek to recoup through rental charges.
Additionally, 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 per cent on an annual basis.
Andy Golding, chief executive of OneSavings Bank, commented that the chancellor has trained his sights on buy-to-let, given the sector’s rapid rise in value, but 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.”
Andrew Montlake, director at Coreco Mortgage Brokers, told FTAdviser that it may seem to be a confusing time for buy-to-let investors, but with lenders still keen to lend in this area and interest rates lower than they have ever been, rumours of the death of the sector may have been exaggerated.
“We have already seen more enquiries from landlords wanting to purchase more property before the stamp duty changes come into effect in April, with many now actively looking at the possibility of purchasing property in a limited company vehicle.
“I suspect we will continue to see more lenders develop a limited company proposition over the coming months to meet the increasing demand.”
ruth.gillbe@ft.com
