When Scott Littlefair first started in the lettings industry back in the 2003, buy-to-let was one of Britain’s best-loved investments even during the down days of the credit crunch.  However, crippling tax blows introduced have caused many landlords to lose interest.

But now buy-to-let has been thrown a lifeline. Slashed stamp duty, better mortgage deals and new tax benefits all mean landlords are flocking back to the market.

Surprise stamp duty savings 

Buy-to-let broker Mortgages For Business saw a record 4,000 extra visits to its website within hours of Chancellor Rishi Sunak’s stamp duty break announcement on 8thJuly 2020.

Online property portal, Zoopla, also recorded a 15% rise in investors looking to buy homes, whilst Littlefairs Property Company, situated in York, saw an increase of between 10% to 12% in buy-to-let enquiries.

Scott Littlefair, Managing Director at Littlefairs Property Company, comments, “we are receiving weekly enquiries from either new landlords or existing landlords looking to expand their property portfolios.  There is a cautious optimism that now is a good time to buy with the stamp duty savings.

Three in ten property investors re-mortgaged existing buy-to-let properties between April and May to release cash ready to go on a spending spree, according to Mortgages For Business.

So when the Chancellor raised the threshold at which homebuyers must pay stamp duty from £125,000 to £500,000, they were quick out of the blocks.

But landlords still have to pay an additional 3 per cent surcharge. It means a landlord purchasing a home worth £300,000 would now pay £9,000 in stamp duty instead of £14,000.

Alan Cleary, managing director of buy-to-let lender OneSavings Bank, says: ‘For an area of the market that has seen tightening regulation and increased taxation over recent years this is welcome news and our teams have already reported an increase in interest.’

Some landlords are so desperate to cash in on the stamp duty saving that they are taking out a government bounce-back loan, worth up to £50,000 to use as a deposit.

Most banks will refuse to loan to buyers borrowing in this way and ask for proof of the source of the deposit.

But brokers say investors are disguising the funds by paying the loaned money into their companies and then withdrawing it as a director’s loan.

Some exceptional mortgage deals are now available

Specialist lenders have also now launched a raft of new mortgages for landlords.

Landbay increased its maximum loan size from £1 million to £1.5million and lowered its deposit demands.

The firm says it expects ‘savvy landlords to exploit the low-interest-rate environment and stamp duty holiday to the full’.

Other small lenders have now reinstated their buy-to -let ranges after withdrawing them during lockdown.

Hampshire Trust Bank increased its maximum loan size, while Foundation Home Loans cut its rates. Yet High Street banks have been more subdued in their response to the tax break.

TMW, part of Nationwide, withdrew some of its specialist buy-to-let mortgages and upped rates on others.

Barclays has yet to bring back buy-to-let mortgages for landlords who buy properties through a limited company, after withdrawing them in June.

Santander continues to ask landlords for a minimum deposit of 25%, instead of its typical 15% sum.

Target locations where rents are rising 

North Yorkshire is now one of the strongest rental markets in the country, Littlefairs Property Company have seen rents rise a record 5.2 per cent in June year on year. And for every available rental property an average of 7 tenants are applying to visit.

By comparison, Inner London, on the other hand, has seen a 7.4 per cent decline year on year in rents because of fewer international tenants, and families leaving the capital during lockdown.

Tax Savings

It is important to note that it may be tax efficient to hold your buy-to-let portfolio within a company.  In this instance the landlord will pay corporation tax at 19% instead of income tax at 20% for basic-rate taxpayers and 40% for higher-rate ones.

It is also easier to change the ownership of a property within a company than one held privately.

This could protect you from the stamp duty, capital gains tax or inheritance tax liability.

If you own investment properties in your name, you are permitted to move them into a limited company.

But as it is considered you are technically selling and re-buying them, you will face a capital gains tax and stamp duty bill.

The stamp duty hiatus could save thousands for landlords.

Moving a £500,000 buy-to-let into a limited company would now cost £15,000 in stamp duty rather than £30,000.

Mortgage rates on limited company deals are more expensive than standard buy-to-lets. Legal and accountancy fees can total £1,000. If you are on a lower income, the tax changes may not be worthwhile.

In short, there are changes a foot that are worthwhile considering as investment in buy-to-let property is looking like a more attractive option.

If you are considering expanding your portfolio or a first time investor, please do not hesitate to contact one of our experienced team on 01904 393989.

Written 14thOctober 2020