Buy-to-let  

Landlords' limited company use rockets

Landlords' limited company use rockets

Landlord confidence has bounced back as investors look to use limited companies or increase rents in reaction to higher tax costs, according to Kent Reliance’s Buy to Let Britain report.

Some 54 per cent of investors are confident over the prospects for their portfolios, according to a survey of 900 property investors.

This is a recovery from the second quarter of the year, when confidence hit a record low (39 per cent) as a result of higher stamp duty charges.

To mitigate the additional tax costs they will face when tax relief is lowered on mortgage interest payments for individuals landlords have increasingly turned towards incorporation, and borrowing through a company structure, where finance costs can still be offset against rental income.

Kent Reliance’s analysis shows that there have already been more than 100,000 limited company loans issued in the first nine months of the year, double the total amount in the whole of 2015.

Andy Golding, chief executive of OneSavings Bank, which trades under the Kent Reliance and InterBay brands in buy to let, said: “Property investors have had to roll with punches in 2016.

“But confidence is returning as landlords take action to limit the damage to their finances. The use of limited companies is soaring, and rents are increasing, even after one of the biggest surges in rental supply in recent history.

“The raft of recent measures aimed at the buy to let sector singularly sought to increase home ownership levels.

“Ironically, they will achieve the opposite, with even greater upward pressure on rents combined with the prospect of declining real incomes likely to stretch affordability even further.

“Only through a substantive and long-term building programme across all tenures will we see an end to escalating house prices and rents. The Chancellor has moved to provide more support for house building, but it is not yet enough to see the step-change in supply that we need.”

Some 11 per cent of landlords state they have already incorporated, or have moved holdings to a lower-rate-tax-paying spouse or partner to limit their tax exposure, while a further 2 per cent are considering doing so.

This alone would account for more than half a million landlords nationwide making the move, Kent Reliance said.

It estimated limited company lending in 2016 could total 143,000 for the year as a whole, rising to 163,000 in 2017. 

Meanwhile the average rent in Great Britain hit a record high of £881 per month despite the supply of rental property homes hitting an 18 month high.

Annual rental inflation slowed a little in the last quarter, but rents still rose by 2.4 per cent.

Steve Olejnik, chief operating officer of Mortgages for Businesses, said: “It was only a year ago that our purchases were about 18 or 20 per cent in limited companies but we are well over 70 per cent now.

“If they come to use saying they want to buy in a personal name we make sure they have tax advice because for the majority purchasing as a limited company makes sense.”