Landlords still consider buy-to-let as an attractive investment option, despite years of tax hikes and regulatory changes - the latest being the dividend tax increase affecting landlords who operate through company structures.
Chris Sykes, associate director and mortgage consultant at Private Finance, told FTAdviser: “Landlords still see BTLs as their bread and butter. But taxes are forcing them to take a business view on their portfolio, rather than sit back and enjoy the profits."
Last week Boris Johnson confirmed a 1.25 percentage point hike in National Insurance alongside a further 1.25 per cent dividend tax to fund the government's social care reform plans.
This will hit company directors particularly hard as they pay themselves an income through dividends. Many landlords had flocked to limited company structures after the government cut the interest tax relief available to them.
“It’s been an onslaught of negative criteria for landlords," said Sykes. But he said the latest tax hike won’t affect landlords as much as people think.
“BTL investors re-invest or pay themselves through director loans,” he explained, highlighting that many will avoid a tax on dividends.
“Companies are a recent thing, so not all a landlord’s properties will be in them either," he added.
Overall, tax changes have meant lenders needed to change how they stressed the rental of a BTL which has seen landlords having to declare more rental income, Sykes said.
But he said many were getting “more inventive” as a result.
“One client is getting a second charge mortgage on their main residence to purchase a property, either to flip or to rent. Another client is raising money to do Airbnbs. Some clients are moving into commercial space. Whilst some are getting into planning gains - so buying land and applying to build on it, or selling it off to developers.”
Research by bridging financier Market Financial Solutions found 38 per cent of property investors purchased another property during the stamp duty land tax holiday, which spanned from July 2020 to September 2021, whilst a further 2 per cent had tried but failed to.
“Our research underlines that, despite some speculation to the contrary, the buy-to-let market has lasting appeal,” said Paresh Raja, chief executive at MFS.
“Tax reforms and new regulations introduced over the past five years have affected landlords as the government has sought to gain better control over the private rental sector, but as an asset class, UK investors are evidently still gravitating towards BTL properties in huge numbers.”
MFS surveyed 512 UK property investors and landlords between August and September, the majority (65 per cent) of which claimed they had exercised a degree of “flexibility” on rental payments due to the pandemic to help their tenants’ financial situations.
More than half (55 per cent) said they will hike up their tenants’ rents over the next 12 months in order to do this.
But a much larger 80 per cent said they would accept lower rents if it meant having a better or longer-term tenant.