So buy to let landlords are likely to increase rent, to pass on the increased cost of running their businesses?
What increased costs are these?
For those investors that purchased buy to let properties as individuals or via a limited company after 1st April 2016, they incur an additional 3% SDLT on top of the standard SDLT rates.
In addition, for those that own buy to let properties on an individual basis (many of who do so with an interest only mortgage), that have previously offset 100% of the interest only element of the mortgage against the rental income, they will see this relief gradually reduced to 20% by 2021.
So this only leaves those investors that purchased their buy to let properties via a limited company before the effective date, that will not incur any additional costs and will not have the need to increase rents?
Will we really have a buy to let market where there is a marked difference in rent based on the costs incurred by the landlord or will the whole market increase rents by a proportionate amount and in so doing, increase the profitability of those landlords that hold their property portfolio in a limited company?
Just in case it had crossed your mind, if an individual transfers the portfolio to a limited company (as well as having to get the limited company's lender comfortable), they would have to consider the costs carefully, as there are additional costs of the limited company borrowing (possibly at a higher rate than as an individual), legal fees of the transfer, as well as Capital Gains Tax for the individual (the sale will need to be at market value) and SDLT for the new limited company at the new higher rate!!
Many tenants renting privately are likely to be hit with rent increases following changes to the tax regime for landlords, according to a report to be published this Friday. Research by the lender Kent Reliance found that about a third of buy-to-let landlords intended to pass on increased costs to their tenants following the surcharge on stamp duty for second property owners and cap on tax relief for buy-to-let mortgages. Four in 10 of the landlords expected to increase rents in the next six months, with three-quarters saying they would do so to offset the reduction in tax relief on mortgage interest. The average rent rise buy-to-let investors anticipated was 5.6%, or £49 a month.