The aforementioned changes to the buy-to-let space has resulted a shift in consumer behaviour, if observations by Mortgage for Business are anything to go by.
According to the latest iteration of the UK mortgage broker’s complex buy-to-let index, the first quarter of this year saw a greater adoption of smaller mortgages and cheaper properties. Meanwhile, figures for conventional properties are below any seen in the past year.
Company landlords
Landlords structured as companies fall outside the scope of both the changes to income tax relief and the PRA affordability guidelines, which have, according to Mr Whittaker, prompted many to consider incorporating.
Mortgage for Business reported 77 per cent of all buy-to-let applications were made via a corporate vehicle in the first quarter of this year – an “unparalleled high” according to the firm.
This compares to 69 per cent of applications in Q4 2016 and 21 per cent before the 2015 Summer Budget, when the tax relief changes were announced.
Mr Boulger said: “Putting a property into limited company can mitigate the changes, but not every investor wants to do that. There is definitely an education process to be had. Yes, there is a little bit of extra cost and paperwork involved, but it might be worth it. Borrowers would need to file accounts with Companies House and audit the company, but a lot of the process involves accounting that borrowers would be required to do if the property was under their own name.
“Buy-to-let investments through limited companies has got cheaper – in many case you can borrow more and higher earners can shield themselves from the tax changes.”
Ending allowances
Some of the smaller yet notable changes to the buy-to-let space include the scrapping of the wear-and-tear allowance, which gave eligible landlords a 10 per cent tax relief on gross rental income on the cost of replacing furnishings.
Plans announced in the 2016 Autumn Statement to ban letting agents in England charging fees to tenants is a smaller, but still contentious, initiative for landlords, according to Mr Richards.
Letting agents are likely to circumvent the changes by levying landlords more. They will in turn pass on the cost to tenants by upping rents, Mr Richards said.
He added: “The combination of all these things has resulted in a notable slowdown in buy-to-let business for us. The changes have all-but killed the market. Estate agents are suffering the most because a lot of the housing market is fuelled by buy-to-let deals. I have heard through the grapevine that many of them are looking to lay off staff as a result of loss of business.
“I still think buy-to-let is a good investment strategy, but it is now pertinent for investors to assess their tax position before entering the market.”
