Tenants ‘will feel brunt’ as property investors are hit by new stamp duty and tax relief cut, says lender

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.

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In his budget following last year’s election, the chancellor, George Osborne, surprised property investors by cutting the rate at which higher rate taxpayers could claim relief on their mortgage interest payments. The change, which will be phased in from next April, means that by 2021 only relief of 20% will be available.

The research, carried out for Kent Reliance’s latest Buy to Let Britain report, found that a large number of landlords had changed the way they managed their properties to counteract the change, with many switching to running their portfolio through incorporated companies, which are exempt from the changes.

The number of mortgage applications through limited companies increased by more than 80% in 2015 to 54,750 a month, making up more than a fifth of the market. So far in 2016, 40% of buy-to-let loan applications had been from companies, the report said.

As well as the planned changes to tax relief, a new rate of stamp duty for second-home owners was brought in during April 2016.

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Three-quarters of the landlords surveyed said that government intervention was the biggest threat to investment. However, the report found that those who owned property were still getting strong returns.

Total rent collected by landlords across Britain had risen to £4.5bn a month, with tenants paying on average 3.5% more than the previous year. The average monthly rent was £872, while the average total annual return, including capital growth, stood at £28,617.

Andy Golding, chief executive of OneSavings Bank, which owns Kent Reliance, said the buy-to-let market was now “firmly in the crosshairs of both politicians and regulators”, and that landlords were reacting. “But it is tenants who are feeling the real brunt,” he said. “Rents are rising and landlords will increase them further as they pass on the increased cost of running their businesses. Far from supporting tenants, recent intervention will see [tenants] bear a heavier financial burden.”

A separate report from the property group LSL showed a 0.4% fall in house prices in England and Wales in May, suggesting some “welcome respite” for those hoping to move out of the rental market and find their own home. The index showed prices fell to an average of £293,599 across England and Wales, and in London dipped below £600,000 to £598,421.

The report suggested April’s change to stamp duty was having an impact but that the forthcoming EU referendum was the biggest factor.

Adrian Gill, director of Your Move and Reeds Rains estate agents, which are owned by LSL, said: “That tax hike and the government’s anti-landlord policies are weighing down the market, but the main factor is short-term confidence ahead of the 23 June referendum.”