As we all know, the rollout of crushing tax changes affecting buy-to-let properties has had a devastating impact on the market.
In a bid to free up more homes for first-time buyers, HM Revenue and Customs first introduced a 3% stamp duty hike for anyone buying a second home — whether for investment purposes or not — in the 2016/17 tax year. In the same period, it terminated landlords’ ability to deduct an amount for so-called wear and tear from taxable profits.
The crushing blow came the following year though, with the introduction of a phased reduction in tax relief on buy-to-let mortgages. This relief was first capped at 75% for mortgage interest payments, a level which has fallen to 50% in the current year and is set to eventually fall to 0% by the 2020/21 fiscal year.
A changing market
However, an increasing number of landlords are finding a way of getting around these tax relief changes by choosing to own their properties via a limited company.
Indeed, a report just released from broker Mortgages For Business showed that 44% of all buy-to-let mortgage transactions were made by limited companies from July to September, up from 42% in the previous three-month period.
The growing use of such corporate vehicles with landlords has led to an explosion in the number of lenders now offering buy-to-let mortgages to limited companies. There were 22 of these financiers as of September, up from 15 at the same point in 2017, with three new market entrants emerging in the last quarter alone.
The consequent rise in the number of mortgage products available to landlords borrowing through a limited company has been even more impressive. During the July-September period last year there were an average of 263 such products available. A year later and the average had exploded to some 628 products.
Claims that the buy-to-let market was DOA have clearly been overdone. Indeed, with the number of products now standing at the highest on record, Mortgages For Business’s managing director Steve Olejnik commented that “this just goes to show there is still a lucrative, buoyant market out there following on from the recent regulatory changes.”
A better way to invest
I’m still not convinced that property investment is the best way that Britons can make their money work for them, however.
First of all, the steps that I mentioned can involve the sort of significant costs that one would associate with the establishment and running of a limited company. Thus they are only likely to be of benefit to higher-rate taxpayers.
Irrespective of those tax issues, there are a number of reasons why I think buy-to-let may isn’t a great way to invest. Increasing regulation, higher costs, and flattening rent growth are all significant problems, and as I have discussed in previous articles there could be even more trouble coming down the line as government wages war on the sector.
I believe that stock investing is a much smarter, simpler and more effective way that savers can put their money to work. And the recent washout in global share markets leaves plenty of bargains out there just waiting to be snapped up.
