In the Summer Budget and the Autumn Statement we have seen measures that will increase running costs for private landlords on higher tax rates and increase acquisition costs for buy-to-let property.
There is, however, a theme emerging. In both cases the government appears to be conceding that larger-scale professional landlords, particularly those who hold their properties in corporate vehicles, are an important component of housing supply. Landlords who hold properties in limited companies will not be subject to the income tax changes announced in the Summer Budget and the Treasury is to consult on an exemption from the 3% increase in Stamp Duty for corporate landlords with 15 or more properties.
It is clear from this a distinction is being drawn between private buy-to-let investors and professional landlords. It is also clear that financial advisers who are sourcing mortgages for landlords need to be aware of the implications for landlords of the changes in taxation and acquisition costs.
At the very least buy-to-let customers need to be made aware of the impact that these changes may have on their finances. In particular, bearing in mind that the changes in income tax relief will be phased in over four years from April 2017, those taking a five-year fix today may see fundamental changes in the economics of their property investment during the fixed-rate period which makes this matter urgent. Landlords, particularly those with larger portfolios or those building larger portfolios, should at least consider incorporating and it may also have a wider application across the buy-to-let market for landlords with smaller portfolios.
Most buy-to-let lending remains outside the Mortgage Conduct of Business rules. Nevertheless, first principles require that the full circumstances of buy-to-let customers are considered. In this environment this should mean that any new buy-to-let customer is appraised of the impact these changes may have on their finances during the life of a loan and that in recommending a suitable lender and product, due consideration is given to whether or not incorporation is a viable option for the landlord. Failing to do so could give rise to a future mis-selling claim if the landlord is materially disadvantaged by the recommendations being made today.
Those of us operating in the buy-to-let space, whether as a lender or a broker, need to ensure we do all we can to help and support landlords through what is going to be a significant period of change for their business.