Landlords raising rents

Experts are forecasting a 4% rise in rents outside of London in 2017, driven by less availability of rental stock resulting from buy-to-let tax relief changes in April.

Rents are set to increase by at least 4% outside of the capital, as a reduction in the supply of rental stock puts upwards price pressure for tenants.

Mortgage interest relief for residential buy-to-let properties is set to be reduced to the base income tax rate, which is 20%. It is due to be phased in over a four-year period starting from April. Landlords are currently able to claim tax relief on the top rate of tax of up to 45%. The changes mean landlords will no longer be able to deduct mortgage interest payments or any other finance-related costs from their turnover before declaring their taxable income.

Limited company options:

A survey has found that landlords are continuing to move toward incorporation, with 32% of respondents owning at least one property in a limited company, up 6% on November 2016. This is ongoing proof landlords are thinking seriously about how to adapt to market changes and maximise their returns, although it is portfolio landlords (i.e. those who own four or more mortgaged properties) who lead the way in this regard.

When asked whether future purchases would be made personally or using a limited company, 58% opted for the just incorporated route and 22% said they would use both. The remainder was split down the middle between those who said they would continue to borrow personally and those who had yet to decide how to proceed.

These figures correlate well with the broker’s Limited Company Buy to Let Index, which in Q4 2016 showed that 63% of all new BTL mortgage applications for purchases were made by landlords using corporate vehicles.

More and more are switching:

There is yet more evidence that an increasing number of buy to let investors are setting up companies to offset the worst impact of changes to mortgage interest tax relief.

The latest Mortgages for Business “Limited Company Buy to Let Index” reveals there was a surge in the proportion of applications for buy to let properties made by landlords using limited companies at the end of 2016.

Over the past 18 months, landlords’ behaviour has changed as the sector comes to terms with the new tax regime. The increased use of Limited Company structures includes both new purchases and transfers - that is, purchases made by landlords selling their personally owned property to their limited company.

Buy-to-let Indian take away

The State Bank of India has confirmed ambitious plans to become a buy-to-let mortgage lender for UK landlords who own their properties within a limited company structure.

As from April this year, landlords will lose the ability to offset their mortgage interest against rental income before they pay tax, but those with properties held within a limited company will still be able to claim tax relief.

The bank's plans to expand follow a series of tax changes brought in by the Government over the past 18 months that make buy-to-let’s less profitable for many.

The bank, a Fortune 500 company, is India's largest and already provides some of the most competitive savings rates available to UK savers.