Clever Lending see enthusiasm for buy to let bridging despite tax fears
03 December 2015
Clever Lending, the master broker, has seen a steady increase in bridging finance applications for buy to let property purchase, despite the tax changes announced by George Osborne in the last budget and the autumn statement.
Their experience reflects the recent statistics issued by the Council of Mortgage Lenders (CML), which reported buy to let lending up 36% year on year. And it is has been reported recently by the Association of Short Term Lenders (ASTL) that bridging lending as a whole has increased by over 30% in the last year.
Clearly, bridging finance is still a very popular way of funding buy to let property. It’s a flexible way of buying at auction or arranging a quick purchase at a special price. During the bridging term, renovation works can also be completed and the property prepared for either rent or sale.
With plenty of buy to let mortgages available from lenders, the exit route from the bridging loan is also well catered for if the owner wants to simply realise the proceeds from any capital appreciation and the refurbishment. Another landlord may take the property on, and some of these types of sales will be taken in to account in the CML figures, with 18% of gross mortgage lending being on buy to let.
The tax changes, coming in to force in 2016 and beyond, give some time for different types of landlords to plan ways to save on their future tax bills. For those with larger portfolios and are higher rate taxpayers, putting the properties in to a limited company could help. The main advantage here is that corporation tax will fall to 19% in 2017, whereas higher rate personal tax will still be 40-45%. So this needs to be given serious consideration. Landlords in this bracket may also look to sell one or more properties to manage their taxable income, it’s a balancing act between profit and tax.
For smaller landlords, there are some ways of reducing costs to maximise returns, despite the tax increases. They can, for example, make sure they are claiming all the taxable benefits associated with renting a property for items such as wear and tear on furniture, decorating and gardening; travelling between properties, ground rent and service charges. Also, the cost of acquiring tenants or the use of a letting agent can be assessed and decisions taken to reduce these costs.
The fear for tenants though is that one way of minimising the tax costs is for their private landlords to increase rents, and with tenants already paying rents which are increasing faster than house prices, this could have a significant knock on effect.
Sonny Gosai, Sales and Operations Manager, said: “Despite future tax concerns, the broker clients we are dealing with have retained optimism in the market for buy to let as a long term financial planning device. Brokers are still seeing high bridging finance levels for both established landlords and those new to the business of being a landlord. With the real impact of the tax reforms not coming in to force for a few years, people are still keen to acquire property now and as there are ways of minimising the tax implications, landlords are already starting to do so.”
