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Landlords adapt to tax and affordability changes

Results from the latest Property Investor Survey published today by Mortgages for Business, reveal that, despite most landlords being affected by recent and ongoing restrictions to income tax relief on finance costs, appetite for further investment continues.

The proportion of respondents seeking to expand their portfolios has grown to 48%, from 45% in November 2016 and 41% a year ago, shortly after the introduction of the stamp duty surcharge on purchases of additional property.

The survey was carried out over a two-week period in May, having been sent to MFB clients and advertised across social media and landlord forums. A total of 186 property investors completed the survey, answering questions on their portfolios and how they were financed.

At the same time, landlords have been increasingly choosing to fix for five years instead of three. In May 2016, three and five-year fixes were each preferred by roughly one in five landlords (18% and 21% respectively). In the time since, however, there has been a huge shift in investor preferences. Five-year fixed rates are now the preferred option for 42%, up from 33% in November and twice the proportion from May 2016. Three-year fixed rates, meanwhile, are now less popular even than ten-year fixes, being chosen by just 5% of respondents – less than a third of their popularity a year ago.

Commenting on the results, Steve Olejnik, COO of Mortgages for Business said:

“Although we expect buy to let lending to reduce somewhat this year, these results demonstrate that landlords are a resilient bunch, capable of adapting their investment strategies to successfully accommodate the new fiscal and regulatory landscape. Incorporation is becoming a standard practice and the move towards five year fixed rates allows landlords to maximise their borrowing options.”

When asked how investors were adjusting to the changing fiscal environment, 62% of landlords claimed to have consulted a professional tax adviser. Of these, the majority (34% of respondents) had sought advice specifically because of ongoing changes to income tax relief on finance costs, while 28% said they already had an existing relationship with a tax adviser.

While it is good to see so many landlords taking professional advice on how they may be affected, it is imperative that the remaining 38% of investors ensure they understand how their tax liabilities may be changing.

Full results and analysis can be found here.

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