Buy-to-let mortgages within limited company structures are mainly used for purchasing, not refinancing, new figures show.
Figures from Mortgages for Business show that 72 per cent, nearly three quarters, of buy-to-let mortgage transactions within limited companies were used to buy property, rather than for refinancing. The figures differ from those of individual landlords and from residential property figures, where refinancing property has long been the preferred reason for borrowing.
Most of the BTL purchase transactions made through limited companies were related to additional property acquisitions, although the figures also include landlords selling property they already own personally into a corporate structure, as these transactions do not qualify as remortgages.
Using companies to hold buy-to-let properties is becoming more popular, thanks to changes in tax policy that saw incremental reductions to higher rate income tax rate relief on buy to let mortgage interest and other finance costs.
Steve Olejnik, COO at Mortgages for Business, which provided the figures, said that stricter affordability guidelines imposed by the Prudential Regulation Authority on personal buy to let borrowing has compounded the shift by landlords towards incorporation.
“To help landlords determine whether using limited companies is the right strategy for them, we’ve been encouraging our clients to take professional advice. We will also continue to produce guides and webinars which explain how the tax and regulatory changes might impact their investments. The landscape of buy to let is changing and it’s important that landlords are equipped to traverse the terrain.”
He said that the figures showed a rise in purchasing over remortgaging because of the short time in which limited companies have been growing in popularity, meaning that few people need to remortgage yet. The number of remortgages is expected to grow as Early Repayment Charge periods expire, allowing landlords to refinance without penalty.
The figures also showed that more mortgages were becoming available to those who use a limited company structure for their buy-to-let mortgages. The percentage of
The proportion of buy to let mortgages available to limited companies grew in Q4 from 21 per cent to just under a quarter of all products. It should be noted that the vast majority of these products are also available to landlords borrowing personally. Average rates for these mortgages rose slightly in the period due to the introduction of additional five year fixed rates which are typically higher than their shorter-term counterparts.
Andrew Turner, chief executive of specialist buy to let mortgage broker Commercial Trust Limited, said: “It is no surprise to hear these statistics. The change in tax for UK landlords is definitively driving this trend. However, it is vital investors do not assume that moving into a limited company structure is the right and only answer. Professional tax advice is essential to assess not just the immediate financial implications, but also your position at the point of sale – whenever that may be.
“Equally vital is the input of a specialist when it comes to seeking buy to let mortgage advice, the various and significant changes within the industry render the lending space more complex than any previous time in its history.
“The benefits of getting it right can be significant, but the cost of getting it wrong is conversely very painful”
Source: FT Adviser