The number of buy-to-let investors borrowing money through limited companies has grown during the first six months of 2016.
Transactional data shows that the number of limited companies that completed buy-to-let mortgage applications increased to 30% of all buy-to-let completions. This is an increase of 9% from the second half of 2015.
It was also seen that there was an increase in the number of lenders offering products to limited company borrows during the first six months of 2016. This increase was due to lenders bringing in limited company products instead of new lenders moving into the buy-to-let sector. Product numbers rose to around 154 which is up from 147 during the final six months of 2015 but they are considered as a percentage proportion the number dropped because of the number of products that became available to individual borrowers.
It seems as though applications and completions for limited company borrowers has, in actual fact, steadied at a third of all buy-to-let businesses. This does hide any huge change in new purchases and the patterns associated with them where the percentage investing via limited companies has increase from below 20% by number or 25% by value during the first half of 2015 to more than 50% during 2016. Applications made in the second quarter of 2016 from limited companies were over 60% and this was linked to purchases of buy-to-let properties.
For limited company borrowers, only a small number have re-mortgaged and this is down to previous investment patterns. However, a number of landlords that already own property are playing the waiting game as they are more than likely waiting to see what is going to happen following the UKs exit from the EU.
Corporation tax is going to be reduced to 15% following the referendum, according to the chancellor and this could mean that more landlords are likely to use corporate methods in order to finance buy-to-let property.
This new method of using limited companies has shown that landlords are looking to change the way in which they operate in an attempt to avoid the increased costs that are coming in to play following the recent tax changes.
In March of this year, applications from limited companies more than tripled when compared to any other months. This is down to the fact the investors we relooking to get ahead of the new stamp duty changes that were coming into effect on 1st April 2016.
Prices throughout the whole of the market during the first six months of this year seem fairly stable; there was an increase in the rates for limited company products. This increased from an average of 4.4% to 4.5% during the second half of last year.
This now means that those products aimed at limited companies are 0.8% points more than the average cost of a buy-to-let mortgage which is 3.7% as a result of the costs associated with underwriting costs.
There was belief that limited company pricing would reduce but this has not happened and this could see more lenders move in to this area.