A respected survey of the buy to let market says proposed tax changes and the increased stamp duty on additional homes are combining to persuade increasing numbers of landlords to set up limited companies.
The Kent Reliance Buy To Let Britain 2015 report says the new stamp duty adds an average £6,600 to landlords’ typical purchase costs and while there will be a likely rush of purchases - and therefore mortgage lending - prior to the new levy’s introduction in April, its long term effect on the market is still unclear.
However, the Kent Reliance report expects rents to be pushed higher as a result of the additional stamp duty and tax changes such as the reduced mortgage interest relief and more restrictive wear and tear allowance.
But the report’s arguably most interesting element is about landlords setting up companies to escape at least some of the new tax burdens.
“Limited company applications [to buy mortgages] hit their highest level on our records in September, with applications of this type three times the level seen in September 2014 (+ 213 per cent). In the month, one quarter of all buy to let mortgage finance demand (25 per cent) was through limited company lending, up from 13 per cent a year ago” the report says.
“If this were extrapolated across the whole buy to let market, it would imply that the number of mortgages through limited companies each month has broadly doubled. In 2014, 29,900 buy to let mortgages were issued to a limited company – just under 2,500 per month. In July, August and September 2015, an average of 5,000 per month were issued, with 6,000 in September alone.”
“Based on the proportion of applications by limited companies in August and September, if this trend was sustained we could see 56,800 buy to let loans issued to incorporated investment vehicles next year, conservatively assuming total lending doesn’t grow in 2016. This is an increase of over a fifth compared to the estimated total for 2015 (46,700) and 90 per cent compared to 2014.”
The full report is here.