A new report studying the trends in the private rented sector (PRS), and the buy to let mortgage market that supports it, reveals that limited company lending reached nearly 38,000 in Q1 2016, higher than the total for the whole of 2014, as landlords react to tax changes.
The new Buy to Let Britain report from Kent Reliance for Intermediaries comes after one of the industry’s busiest periods in its history, as buy to let investors pulled out all the stops to complete on purchases ahead of the new stamp duty surcharge deadline on 1st April.
The report revealed that buy to let purchases climbed 176% in March, as investors rushed to beat the introduction of a stamp duty surcharge on second homes and buy to let investments.
Buy to let lending to limited companies also sky rocketed, reaching 38,000 in Q1, and Kent Reliance has estimated that this figure could touch 100,000 in 2016 as landlords continue to find ways to mitigate the effects changes in tax relief.
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.
And Kent Reliance says that this trend is set to continue, with a third of landlords surveyed considering this move, with 7% having already done so.
Professional landlords with larger portfolios (20+ properties) are more likely to incorporate, with nearly half considering this step and 22% having already done so.
Despite government efforts to temper its growth, the report found that the PRS in Great Britain grew by 266,000 households in the last 12 months and that the value of landlords’ holdings climbed £156bn and now stands at £1.2 tr.
Kent Reliance’s latest report also found that monthly rents have risen by 3.5% to an average of £872, in parallel with growing tenant demand.
“Increased taxes on landlords are actually increased taxes on tenants. As an unintended consequence of rising tax costs, four in ten investors expect to increase rents in the next six months,”
the report states.
And rents are set to rise further, as 39% of landlords expect to raise rents by an average of 5.6% over the next six months (an increase of about £49 per month for tenants).
Despite there being a knock to investors’ confidence (three quarters see government intervention as biggest threat to property investment), 71% of landlords still prefer property to any other asset class.
In fact, the report found that average total annual returns for landlords have been improving due to rental inflation and strong capital gains. By the end of the first quarter, the average return stood at 13.6%, with a yield of 4.6% and 9% house price inflation, which can be read as £28,617 in cash terms.
There was also strong growth in buy to let remortgage lending, which was up by 63%, rising twice as quickly as house purchase lending.
Andy Golding, chief executive officer, Kent Reliance, said:
“Driven by a political agenda that prioritises home ownership and a view that buy to let is harmful to the UK’s housing market, property investors are seen as the scapegoats for the nation’s housing issues, whilst regulators are turning their attention to the lenders that support the market.
“This constant focus on managing demand does nothing to address the real issue, which remains the lack of supply of new housing.”
Kent Reliance expects the number of privately rented households to reach 5.3m by the end of the year, and 5.6m by the end of 2017.
Even taking into account a cooling off in house price growth over 2016, it anticipates the sector will be worth about £1.3trn by the end of the year.
“The long-term fundamental drivers for the future expansion of the PRS are well entrenched. The country is seeing the number of households continue to rise and the population swell. Moreover, the level of house building is a long way short of being able to match this growth.
“The government’s measures to subsidise first-time buyers without increasing supply are merely pushing up house prices, while financial penalties on landlords are simply causing rents to rise. Blaming landlords is nothing more than misdirection from a government failing to conceal its blushes on housing supply.”
“Ultimately, the only way to bring down housing costs for renters or home buyers is to increase supply. Tinkering with tax treatment, or applying further regulation will not address this key issue,”
the report concludes.
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13th June 2016