The number of landlords using limited companies to manage their buy-to-let portfolios has shot up in response to increased government regulation, new research shows. According to Mortgages for Business, 77% of all buy-to-let purchase applications were made via a corporate vehicle in the first quarter of 2017. This compares to 69% of applications in the […]
The number of landlords using limited companies to manage their buy-to-let portfolios has shot up in response to increased government regulation, new research shows.
According to Mortgages for Business, 77% of all buy-to-let purchase applications were made via a corporate vehicle in the first quarter of 2017.
This compares to 69% of applications in the final quarter of 2016 and just 21% before the 2015 Summer Budget, when the tax relief changes were announced.
The average number of products available to limited company borrowers has increased by more than a third to 266, with fixed rates cut across all terms.
Lenders are offering unprecedented choice to limited company borrowers despite a drop in buy-to-let product numbers overall.
Limited company rates have also improved, with the average three-year fixed rate now just 0.5% higher than equivalent products available in the wider market.
Since the government crackdown on the buy-to-let sector, investors have increasingly turned to incorporation as a way of sustaining current levels of borrowing.
Last year, the government increased stamp duty on second homes by 3% as part of its plans to curb the buy-to-let market and free up property for first-time buyers.
From 6 April, mortgage interest relief for residential buy-to-let properties is also set to be reduced to the base income tax rate, which is 20%.
The Bank of England’s Prudential Regulation Authority introduced tougher underwriting standards and affordability assessments on 1 January to make sure borrowers can cover the cost of their mortgage in the event of an interest rate rise.
Lenders are required to set a minimum borrower rate of 5.5% during the first five years of a buy-to-let mortgage contract when assessing affordability.
They also have to take into account annual rent rises of 2% when assessing whether a landlord can afford a property.
Landlords who own their properties as a limited company can avoid the changes to taxation and instead pay Corporation Tax, which is currently 20%, but set to drop to 18% from 2020.
By doing this landlords can claim the costs of running their buy-to-let properties as an allowable expense, effectively writing off the cost of their mortgage payments.
David Whittaker, CEO of Mortgages for Business, said: “With the changing face of the buy-to-let mortgage market, it is no surprise that lenders are keen to appeal to limited company borrowers.
“We have been recommending for some time that our clients seek professional tax advice to determine whether incorporation is the most suitable route for their circumstances, and these figures can only further encourage landlords to consider their position.”
