The fourth edition of the Kent Reliance Buy to Let Britain report found that nearly 38,000 buy-to-let loans were issued to limited companies in the first three months of the year and is estimated to near 100,000 for 2016.
The report stated that landlords flocked to incorporate to mitigate the impact of the tax changes announced in the Summer Budget. As of April 2017, tax relief available on personal buy-to-let mortgage payments will be reduced from 45%, eventually falling to 20%, but will not apply to limited company buy-to-let products.
Borrowing through a company structure means investors are taxed on profits at lower corporation tax rates, and can offset all finance costs against rental income.
The data from Kent Reliance showed mortgage applications via limited companies increased by over 80% in 2015 compared to 2014, accounting for one in five buy-to-let mortgages.
Andy Golding, chief executive of OneSavings Bank, which trades under the Kent Reliance and InterBay brands in buy to let, said the market now “sits firmly in the cross-hairs of both politicians and regulators”.
“Thousands hurried purchases to beat the Stamp Duty deadline, and the popularity of limited companies is soaring as investors seek to reduce tax exposure,” Golding added.
But Golding added that tenants were feeling the brunt of the changes.
“Rents are rising, and landlords will increase them further as they pass on the increased cost of running their businesses. Far from supporting tenants, recent intervention will see them bear a heavier financial burden,” he said.
Kent Reliance estimates that limited company loans will total 98,400 in 2016, nearly 40% of the total number of buy-to-let loans, and nearly three times its share of the market in 2014.
The report said that rents are already being driven up by landlords passing on costs to tenants, with the average monthly rent rising by 3.5% to £872 per month in the last year. It said four in 10 landlords expect to raise rents in the next six months, by an average of 5.6%.
“Increasing landlords’ tax bills won’t alter the root cause of the UK’s housing crisis,” said Golding.
“As long as the demand for homes every year far outweighs the number of new houses, the only way to reduce the cost of housing in this country for tenants and first-timers alike is to build more. We need to see a paradigm shift, moving the focus from sustaining demand to expanding supply in all tenures.”
More than a quarter of a million new renting households were formed in the last year in Britain, increasing the total by 5.5%. The value of a rented home is also climbing, rising by an annual rate of 9% currently.
The report added that as a result, the value of the sector has increased by £156bn in the last year to £1.2trn.