Landlords up rent to meet tax hikes
Tenants are already feeling the impact of tax changes aimed at buy-to-let landlords as rents went up by 3.5% in 2015, a new survey has revealed.
In the last year, the average monthly rent in the UK has risen by 3.5% to £872, according to Kent Reliance’s Buy to Let Britain report. It also suggests that rents will go up even more. Of the 1,097 landlords it surveyed, 40% expect to raise rents in the next six months by an average of 5.6% – an increase of around £49 a month for tenants. Some 75% of landlords who plan to put rents up claim they are doing so to soften the blow of cuts to mortgage tax relief announced in the summer Budget.
The report also found that buy-to-let lending to limited companies has rocketed to almost 38,000 loans in the first three months of 2016 – nearly four times the number issued in the first quarter of 2015.
The mortgage lender predicts that buy-to-let loans to limited companies is set to rise to 98,400 in 2016 – nearly 40% of the total number of buy-to-let loans – suggesting that landlords are turning their property portfolio into limited companies to soften the impact of increased tax and regulations.
Andy Golding, chief executive of OneSavings Bank, the parent company of Kent Reliance, says: “The buy-to-let market now sits firmly in the crosshairs of both politicians and regulators, and we are seeing landlords react. Thousands hurried purchases to beat the stamp duty deadline, and the popularity of limited companies is soaring as investors seek to reduce tax exposure. But it is tenants who are feeling the real brunt.
“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 adds.
A hugely unpopular tax paid on property and share purchases. Stamp duty on property is levied at 1% for purchases over £125,000 (£250,000 for first-time buyers) which then moves up at a tiered rate. For property between £125k and £250k you pay 1%, then 3% from £250k up to £500k and then 4% from £500k to £1m and then 5% for properties over £1m. But unlike income tax, which is “tiered” and different rates kick in at different levels, stamp duty is a “slab” tax where you pay the rate on the whole purchase price of the property. On shares, stamp duty is charged at a flat rate of 0.5% on all share purchases. Figures correct as of May 2011.
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.