According to industry commentators, more buy-to-let landlords are likely to invest in properties through a limited company structure from 2017 when the higher rate of buy-to-let tax relief is gradually withdrawn over five years from 45% and 40% to 20%.
Respondents to a Mortgage Solutions poll remained fairly positive about the future of the market following the Budget announcement, with over two thirds (67%) saying they did not predict a mass exodus of investors to exit as a result of the changes. Just 33% said they expected a large proportion of investors to leave the market.
Ying Tan, managing director at The Buy to Let Business, said because the changes were gradual it gave landlords time to change their strategies and evolve.
“The good thing is nothing will be introduced for two and a half years and then the tax cut is gradually introduced over five years. Going forward things may change with investors looking to purchase properties via limited companies as corporation tax is due to go down from 20% to 18%, so it makes sense to move towards a limited company purchase. I think rates will start to become more competitive as new entrants start to come into that area and then we’ll start to see similar fees to vanilla rates.
“Perhaps what the government is trying to say is, if landlords are saying buy to let is a business, then make it a business and set up a company, which I see the logic in. Where I am critical is that the government could have engaged more with the community more prior to decision-making,” he added.
Jonathan Harris, director of mortgage broker Anderson Harris, said there was an initial flurry of panic among investors on Budget day.
“We took a lot of calls from buy-to-let investors, not just clients, on the day of the Budget as people panicked when they first heard of the changes the government is implementing. However, now that the dust has settled we are not seeing landlords sell up and switch to other investments. There may be an issue when interest rates start to rise but this may not be for a while and the Bank of England has suggested that when they do start rising it will be slowly, so it shouldn’t be as painful as it might have been,” Harris said.
“However, it may be different for new investors who will think more carefully before jumping into buy-to-let. It won’t put huge swathes of people off but they will do their sums that more carefully and may also buy via a company in order to take advantage of full mortgage interest relief.”