Landlord confidence at a high following government intervention

Landlord confidence at a high following government intervention
Confidence is returning as landlords take action to limit the damage to their finances. The use of limited companies is soaring, and rents are increasing, even after one of the biggest surges in rental supply in recent history.

The latest report from Kent Reliance has shown that landlord confidence has bounced back following recent government intervention as investors look to secure mortgages through limited companies or increase rents in reaction to higher tax costs.

Landlords’ confidence is at its highest in a year, with 54% of investors confident over the prospects for their portfolios, according to a survey of 900 property investors, run in association with BDRC Continental. This is a marked recovery from the second quarter of the year, when confidence hit a record low (39%) as a direct result of higher stamp duty charges.

Property investors have taken action to mitigate the additional tax costs they will face when tax relief is lowered on mortgage interest payments for individuals. This has seen landlords increasingly turn towards incorporation, and borrowing through a company structure, where finance costs can still be offset against rental income. Kent Reliance’s analysis shows that there have already been more than 100,000 limited company loans issued in the first nine months of the year, double the total amount in the whole of 2015. Over 12,000 a month in the last quarter.

Demand for this type of arrangement is likely to intensify as the tax changes bite. 11% of landlords state they have already incorporated, or have moved holdings to a lower-rate-tax-paying spouse or partner to limit their tax exposure, while a further 25% are considering doing so; this alone would account for over half a  million landlords nationwide making the move. Kent Reliance estimates limited company lending in 2016 could total 143,000 for the year as a whole, rising to 163,000 in 2017.   

The forthcoming tax changes are also driving up rents. The average rent in Great Britain has hit a record high of £881 per month, despite the supply of rental property homes hitting an 18 month high in the period, a knock on effect of the rush to beat the stamp duty hike. Annual rental inflation slowed a little in the last quarter, but even so, rents still rose by 2.4%. With a growing tenant population, and rising rents, landlords in total are now collecting approximately £4.6bn in rent each month.

Rent rises are likely to accelerate in 2017. A third of landlords expected to increase rents in the next 6 months alone, by an average of 5.4% - equivalent £571 per year for households. Two thirds cite higher future taxes, and 43% the strength of tenant demand. Indeed, twice as many landlords are seeing an increase in tenant demand as the number seeing a decline. The recent budget announcement to ban letting fees, while providing a welcome reduction in tenants’ upfront costs, will see any additional costs for landlords factored into rents.


Extra pressure will also come from the Prudential Regulation Authority’s new underwriting standards, due for implementation next year; these will see landlords needing to demonstrate higher yields to secure finance, unless they can provide larger deposits. As a result, Kent Reliance forecasts that rents will rise by an average of 3% in 2017.

Growth in the number of households has moderated, growing at 5.4% in September compared to 5.5% in the first quarter, with 5.3million rented households in total. Combined with strong house price growth, the value of the PRS in Great Britain has risen to £1.3trn, with £174bn added since September 2016.  

Andy Golding, Chief Executive of OneSavings Bank, had this to say: “Property investors have had to roll with punches in 2016. The stamp duty levy clearly took its toll on the market, and combined with the forthcoming tax changes, landlords have felt at the mercy of a political agenda. But confidence is returning as landlords take action to limit the damage to their finances. The use of limited companies is soaring, and rents are increasing, even after one of the biggest surges in rental supply in recent history.

There is still more to come for the buy to let sector next year. The PRA’s new underwriting standards are due to be implemented, the tax changes begin to take effect, and there is yet more potential intervention in the form of the FPC’s new powers. If the cumulative effect of constant change undermines the expansion of rental properties, this will simply exacerbate the housing crisis.

The raft of recent measures aimed at the buy to let sector singularly sought to increase home ownership levels. Ironically, they will achieve the opposite, with even greater upward pressure on rents combined with the prospect of declining real incomes likely to stretch affordability even further. We have warned all along that the tax changes will push up rents, and this is already starting to happen. The ban on often unjustifiably high letting fees is well intentioned. However, it also means landlords could pass higher costs onto tenants, doing little to bring down the overall cost of renting.  

Only through a substantive and long-term building programme across all tenures will we see an end to escalating house prices and rents. The Chancellor has moved to provide more support for house building, but it is not yet enough to see the step-change in supply that we need.”

Join our mailing list:

Leave a comment



Our Next Event

Complex Lending Roadshow March 2017

Complex Lending Roadshow March 2017

Bolton - 14/03/2017

Barnsley - 15/03/2017

Solihull - 16/03/2017

Watford - 17/03/2017

Register now

Latest Comments

Matthew Hollywood
Matthew Hollywood 07 Feb 2017

Matthew Hollywood - Director Mishon Mackay Land & New Homes - Brighton The shortage of New Homes is in part effected by the lack of land sales. Land sales are held back because there is a disparity between...

view article
CommercialTrust
CommercialTrust 30 Jan 2017

Hi Graham, Would be interesting to see the above figure calculated against an investment via a Lt Company /SPV structure and if the investor found themselves pushed in to the higher tax bracket. Mortgage...

view article
Tony Gimple
Tony Gimple 16 Jan 2017

HMOs do make great commercial sense, but do the area research first!

view article
OJoyce
OJoyce 30 Dec 2016

We can only hope this will bring the results we all want and strive for.

view article
Reality
Reality 21 Dec 2016

The changes to land tax were a shock to many when it was first announced by the Chancellor in 2015?s Autumn Statement. However, once the changes came into place and the full details were digested, it?s...

view article
akbar ali dayala
akbar ali dayala 20 Dec 2016

I am a landlord and director of an online letting agents at the moment we charge tenants minimal fees and landlord also meaning we can get best deals for tenants all around if the ban comes in it...

view article
milessgabriel
milessgabriel 05 Dec 2016

Useful article

view article
Spencer Fortag
Spencer Fortag 30 Nov 2016

I am glad that someone listened to me!

view article
Tony Gimple
Tony Gimple 27 Nov 2016

It's not just the lack of estate agency advice that's costing landlords money; most are getting seriously bad advice from their accountants resulting in tax bills far higher than they need to be. Likewise,...

view article
Sally Walmsley
Sally Walmsley 18 Nov 2016

The RLA stands by its sell-off statistics. While we welcome the feedback from Mr Jagota and are delighted to hear how well things are going for landlords in the north east, we would like to make it clear...

view article
Sheryl87
Sheryl87 18 Nov 2016

The high employment levels and the vibrant economy has led to ever-increasing demand for rental properties, especially from professionals relocations from other cities. This has led to more experts teaming...

view article
Sheryl87
Sheryl87 18 Nov 2016

Renting out your house can be risky business. It's good to think about residential landlords insurance. Standard cover includes buildings cover and cover for loss of rent following damage to a property...

view article

Related stories

More articles from Landlords