Buy-to-let landlords likely to increase rents to offset higher costs – report

Tenants “will feel brunt” as buy-to-let landlords are hit by new stamp duty and tax relief cut, says lender.

According to a recent report, many tenants renting privately are likely to be hit with rent increases following the surcharge on stamp duty for second property owners and cap on tax relief for buy-to-let mortgages.

The report by lender Kent Reliance has found that landlords will make the tenants “bear the brunt” of increased buy-to-let taxation, arguing that with housing in short supply landlords can – and – will pass on any increase in costs to their tenants.

They found that 40% of landlords expect to raise rents in the next six months by an average of 5.6%, with three quarters of landlords who are raising rent, blaming the government’s increased taxation of the sector.

The increase would be dramatic, as average rent over the past 12 months have risen by less than 4%.

The changes set out in George Osborne’s budget last year, are to come into force in April 2017, and will mean they can no longer deduct the entire cost of their mortgage interest from their rental income before calculating their tax bill.

Osborne introduced the changes to mortgage interest relief, arguing that they would help create “a level playing field” between those wishing to buy homes to live in, and buy-to-let investors.

The number of mortgage applications through limited companies increased by more than 80% in 2015 to 54,750 a month, making up more than a fifth of the market. So far in 2016, 40% of buy-to-let loan applications had been from companies, the report said.

Rent collected by landlords across Britain had risen to £4.5Bn a month, with tenants paying on average 3.5% more than the previous year. The average monthly rent was £872, while the average total annual return, including capital growth, stood at £28,617.

The study also found that landlords are rushing to put their properties within limited companies which are not subject to the different rate of tax, as properties within limited companies are taxed at lower corporation tax rate, and can continue to offset their mortgage interest.

A third of landlords are considering incorporating and 7% have done so following the tax changes.

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