One in five buy to let products are now for limited companies.
The increasing proportion of BTL mortgages available to limited companies has doubled over the last year from 10% of the market to 20% says Moneyfacts.
With over 300 products catering for incorporation we have seen a sharp rise in the last five years especially as landlords have been hit by several changes in buy-to-let including 3% extra stamp duty and cuts in tax relief.
Now savvy landlords are opting to set up limited companies and pay a different tax structure to what they would as a ‘private’ landlord which can also help keep them out of the higher tax bracket.
Charlotte Nelson, finance expert at moneyfacts, said: “It feels like the BTL market has been hit from all angles recently, and this has left landlords feeling vulnerable and wondering whether it is still worth continuing in the BTL sector.
“This has resulted in a shift in focus to limited companies, away from individual ownership, which is influencing not just landlords but also providers offering BTL mortgages.
“As the reality of April’s tax changes starts to bite, the proportion of deals available to limited companies has grown dramatically, having increased by 7% in just six months. With the extra pressure in the BTL market and the added interest in limited companies, it is no surprise that lenders have leapt into action and started offering more deals to limited companies.
“Despite the boost in product numbers, borrowers considering this type of mortgage should be aware that they could find themselves on a more expensive deal compared to the rest of the BTL market. For example, the average two-year fixed rate BTL mortgage for those applying as a limited company stands at 4.22% today, whereas the average two-year fixed rate for the rest of the market is significantly less at 2.97%.
“With all the extra legwork a limited company option entails, any borrowers considering it should consult a financial adviser to ensure it is the right route for them.”
In other news The NLA calculate that around 440,000 basic-rate tax payers – 22% of approximately two million landlords in this country – will move up a tax bracket as a result of the phasing out of mortgage interest relief, which they have dubbed the ‘Tenant Tax.’
The NLA says that any single property landlords forced up a tax bracket would need to increase the rent by just over 11% in order to continue to make a steady yield from the property, which equates to as much as £116 per calendar month more for the average rental property.
Richard Lambert, chief executive officer at the NLA, said: “Single property landlords are responsible for providing a huge proportion of the UK’s private rented homes, and these findings show that, slowly, more and more are waking up to the fact their tax bills could be significantly higher in the coming years.
“A fifth [21%] of landlords with just one property do not make a profit, and over the next few years those bumped up a tax bracket will find that their ability to continue to provide good quality housing will be seriously affected.”
Perhaps using a limited company could seriously reduce potential taxes hence why we are seeing a dramatic increase in applications for this type of lending?
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Daniel Peacock