Last reviewed 18 January 2017

Nearly two thirds of buy-to-let landlords are worried that they will be hit by the April 2017 changes to income tax relief and stricter mortgage affordability checks, although the majority plan to retain their property investments.

Results from the latest Property Investor Survey conducted by Mortgages for Business found that 60% of respondents felt they would be directly affected by income tax relief changes, although 29% said they would not be hit.

Perhaps of more concern was the finding that one in ten landlords had not even heard about the imminent tax changes. Despite the tax changes only 9% of respondents said they planned to reduce their property portfolios in the next six months while 45% plan to invest in more properties and 46% will hold their investments as they are for the time being.

Those least affected are likely to be base rate taxpayers or landlords who manage their portfolios through limited company vehicles which are subject to corporation tax.

David Whittaker, CEO at Mortgages for Business said: ‘The percentages feel about right for the market in general and it has certainly been a tough 18 months or so for landlords.

‘We are still encouraging landlords who haven’t already taken professional advice on the matter to do so ASAP, as some may find that the new formula will tip them into the next tax bracket leaving them worse off.’

The results compare well with investor understanding of the new Prudential Regulation Authority (PRA) guidelines on buy-to-let lending, which will curb loan to value rates. Some 60% of respondents said they understood the impact of the rule changes on how much they can borrow.

However, a quarter of respondents said they only partially understood the implications of the PRA guidelines.

From 1 January 2017, buy-to-let lenders are facing tighter affordability calculations. Worryingly the survey found that 9% of respondents did not know how the revised affordability calculations would affect how much they could borrow and 6% were completely unaware of the new guidelines.

The survey also found that landlords are continuing to move toward incorporation, with 32% of respondents owning at least one property in a limited company, up 2% on May 2016. Those holding property in companies tend to own four or more properties.

When asked whether future purchases would be made personally or using a limited company, 54% opted for the just incorporated route and 16% said they would use both.

These figures reflect the Limited Company Buy to Let Index, which in Q3 2016 showed that 63% of all new buy-to-let mortgage applications for purchases were made by landlords using corporate vehicles.

Five-year fixed rate mortgages are the most popular product type with 34% of respondents expressing a preference for this category of loan.

The majority of respondents (53%) have loans of between 50% and 74% LTV (loan-to-value) against their portfolios, with a further 25% having borrowing of between 25% and 49% LTV and 9% with borrowing of up to 24% LTV.

Despite a tougher operating environment, the proportion of landlords seeking to expand their portfolios rose to 45%, up from 41% in May 2016. This suggests that most are willing to absorb the increased costs, adapt strategies and remain in the property investment market, which still provides better returns than most alternative asset classes.

The average survey respondent owns between four and 10 investment properties, with 49% of respondents falling into this category. Additionally, 20% own two or three properties, 12% between 11 and 20, 10% a single property and 9%, 21 or more.

As previously published in CCH Daily.