Rising numbers of UK and international landlords are choosing to register as a limited company to manage their BTL portfolios and to take advantage of sizeable tax benefits.
Thirlmere Deacon has seen a spike in international investors enquiring about forming a limited company, up 62 per cent year on year. It claims that further findings reveal that there were a record number of new limited companies set up in 2020, with 228,743 buy-to-let firms up and running.
Last year, there were a total of 41,700 buy-to-let incorporations, an increase of 23 per cent on 2019. The numbers have more than doubled since 2016, rising 128 per cent, when tax changes for landlords were introduced. Between the beginning of 2016 and the end of 2020 more companies were set up to hold buy-to-let properties than in the preceding 50 years combined. Companies set up to hold buy-to-let properties were the second most common company founded during 2020, with companies selling goods online or by mail order in first place.
To find out more about how we can assist you with your Mortgage requirements, please click here to get in touch
More than a third (34 per cent) of all companies set up to hold buy-to-let properties in 2020 were in London. Together, London and the South East accounted for almost half (47 per cent) of all incorporations.
Stuart Williams, founder and CEO of Thirlmere Deacon, said: “If landlords hold property in a limited company, they have the ability to offset 100 per cent of mortgage interest against profits, while those holding a property in their own name can offset just 20 per cent. Investing in property through a company provides landlords with higher levels of tax relief and personal tax savings. Landlords can grow their BTL portfolio more quickly, as there is no income tax on the retained profit, thus allowing more cash to re-invest. Although corporation tax is payable on trading profits, this is lower than the higher income tax rate.”
He added: “However, running a portfolio through a limited company is not right for everyone. One of the main benefits of remaining a private landlord is that any post-tax profits can go straight into their pocket. Profits can be used then for anything they choose – all paid for by the tenants.”
There are now 2,333 BTL mortgage deals available to landlords, the highest number since March 2020, when there were 2,897 deals available. While this has resulted in more choice for landlords, average rates have also risen.
The average five year fixed rate now stands at 3.41 per cent; its highest since September 2019 when it reached 3.44 per cent.
The average two year fixed rate currently stands at 3.05 per cent, again the highest in nearly two years. In June 2019 it also stood at 3.05 per cent.
To find out more about how we can assist you with your Mortgage requirements, please click here to get in touch
‘It is important to note that these are averages, and therefore while representative of the market as a whole, there are some very competitively priced products available, with some – depending on LTV and criteria – available at below 2 per cent’, said Moneyfacts’ Eleanor Williams.
‘Therefore, those who are hoping to refinance or take on a new deal would do well to shop around’.
One other reason is that some deals offer incentives, such as free valuations or ‘no legal fees’. Williams said these are becoming scarcer ‘although interestingly, the proportion of the market where cashback is available has increased, not only year-on-year, but by 8 per cent over the last month’.
A year ago there were warnings that the buy-to-let market was looking increasingly bleak and that landlords were deterred from entering the sector, or quitting it altogether as a result of tax changes.
But despite scaremongering that there will be a ‘mass exodus’ of landlords, new data suggests that buy-to-let landlords are taking a far more pragmatic approach.
New data from Hamptons shows that last year 131,900 properties were sold by landlords in Great Britain, the smallest sell-off since 2013, when 105,830 properties were sold.
The research also reveals that the average landlord who sold up last year in England and Wales sold their buy-to-let for £82,450 or 42% more than they paid for it, having owned the property for 9.1 years on average.
The average landlord gross gain increased by £3,390 or 4% to £82,000 compared to 2019 – £79,060 – marking the first annual rise in more than five years.
To find out more about how we can assist you with your Mortgage requirements, please click here to get in touch
Landlords in London made the biggest gains. The average London landlord sold their buy-to-let for £302,200 or 71% more than they originally paid for it, having owned the property for 9.8 years on average.
Last year reversed the fall in a London landlord’s gross profit. Despite the increase, typically landlords who sold in the capital last year made a smaller gross profit than those who sold in 2016 when they made an average gain of £364,960. 2016 marked the high point for landlord profit when many investors, having bought at the bottom of the market following the 2008 financial crash, decided to sell up.
The top 10 local authorities where landlords made the biggest gains were all in London.
Kensington and Chelsea topped the list. Last year the average Kensington & Chelsea landlord sold their buy-to-let for £784,980 more than they paid for it 10.6 years earlier. The gain they made was 9.5 times greater than the average in England & Wales. Camden, City of Westminster and Hammersmith & Fulham ranked second and third on the list, with the average landlord gain exceeding £500,000.
Landlords in the North East continued to make the smallest gains. The average landlord who sold up in the North East made £11,310 or 16% capital gain having owned for 8.0 years. Some 36% of investors in the region sold their buy-to-let at a loss, compared to just 12% in England & Wales overall.
This means that 37% of investors who sold in the North East last year would have paid capital gains tax (CGT) due to the sum being covered by their £12,300 annual allowance. Across England & Wales, 77% of landlords would have paid CGT on their profit. London landlords, who made the biggest gains, are most likely to have a tax bill to pay with 91% of investors making a gross gain surpassing the annual CGT allowance. Investors can offset costs such as stamp duty and renovation expenses from their capital gains tax bill.
The North East also had the highest share of landlords selling up. Last year 24% of homes sold in the region were sold by a landlord. This equates to around 9,730 homes.
Meanwhile, 17% or 15,540 homes sold in London were previously rented, down from 19% or 18,920 homes in 2020.
Some 9% of rental homes sold in Great Britain last year had been owned by a limited company landlord. Last year,12,400 buy-to-let companies were dissolved. While the average buy-to-let company had operated for 6.2 years, 75% operated for less than five years.
Rental growth
In March, the average rent on a newly let home stood 4.4% higher across Great Britain than at the same time last year. Regions outside London continued to see the highest rates of rental growth with rents increasing by 6.8% annually, the third consecutive month that annual rental growth outside the capital exceeded 5%. And apart from London, last month every English region recorded rental growth of at least 4%.
Rental growth in London continues to follow a different path, with rents falling 2.1%. This marked the second month in a row that rents have fallen after turning positive between October 2020 and January 2021. Once again, the fall has been led by Inner London where rents dropped 17.1%, the 13th consecutive month that rents have decreased. While in Outer London, rents were 2.6% higher than at the same time last year, with tenants in Zones 3-6 viewing 48% more homes than in March 2020.
Aneisha Beveridge, head of research at Hamptons, said: “Last year, the number of homes sold by landlords reached a seven-year low. A pause in the housing market during the first Covid-induced lockdown, which suppressed overall transactions, combined with an eviction ban throughout the remainder of 2020, limited the opportunity for landlords to sell up.
“Landlord sales have been relatively high over the last few years due to tax and regulatory changes that have reduced the profitability for some investors. But given tax relief on mortgage interest will be fully phased out from the 20/21 tax year, it seems as though most landlords who would be hit hardest by these changes have already left the sector.
“Over the last few years, the average capital gain made by a landlord has been shrinking. But despite the pandemic, stronger house price growth seems to have reversed this trend. Landlords who have been in the game for the longest period of time have reaped the largest rewards. The average landlord who owned their buy-to-let for more than 15 years made more than three times more than a landlord who had owned their property for less than five years. Many of whom would have renovated and invested further in their property to add value.”
“Despite the gradual easing of lockdown, the London vs rest of the country rental growth divide remains entrenched. Outside the capital would-be tenants are scrabbling over stock before it hits the portals, while in Central London landlords are chasing tenants just as relentlessly. There are however signs of a return to Zone 1, with viewings up 64% year-on-year in March. But record high stock levels mean rents are unlikely to start recovering to pre-pandemic levels until later in the year.”
Average landlord seller gain by region
Region
Average Landlord Gain
YoY Change £
Average % gain
Average length of ownership (years)
London
£ 302,200
£ 3,760
71%
9.8
South East
£ 102,200
-£ 5,380
45%
9.2
East of England
£ 90,590
-£ 2,630
48%
8.9
South West
£ 68,250
£ 2,160
40%
8.6
West Midlands
£ 50,240
£ 5,220
42%
9.0
East Midlands
£ 44,560
£ 2,960
41%
9.1
Wales
£ 37,120
£ 1,170
38%
9.6
North West
£ 34,780
£ 170
36%
9.0
Yorkshire & the Humber
£ 30,800
£ 940
34%
9.6
North East
£ 11,310
-£ 3,500
16%
8.0
England & Wales
£ 82,450
£ 3,390
42%
9.1
Source: Hamptons & Land Registry
Top 10 local authorities where landlords made the biggest gains
Data from Keystone Property Finance has revealed that mortgage products designed to offer exclusive rates for higher loan amounts are the most popular product among BTL landlords, with more than half (58%) of Keystone clients applying for their larger loans range since December 2020.
The specialist BTL lender’s larger loan range caters for loan sizes of £250,000 – £1m and offers rates from 3.09%.
The rise in popularity for larger loans could be attributed to landlords looking to take advantage of the stamp duty incentive and being able to afford more expensive properties as a result of the tax saving. Data shows that landlords made up 15% of all sales agreed in November 2020, the highest level for four years, as a result of the stamp duty incentive.
To find out more about how we can assist you with your Mortgage requirements, please click here to get in touch
Keystone’s figures also signal a growing confidence in the market, as landlords continue to take out larger mortgages in expectation of a continued uptick in future property prices and of positive rental yields post-pandemic.
The data also reveals differences in the types of landlords applying for the specialist lender’s larger loan products, with nearly two-thirds (62%) of applications coming from limited companies compared to 38% of applications from individual landlords.
Elise Coole, managing director of Keystone Property Finance, said: “Our data shows that landlords remain confident about the BTL market, with the majority of customers looking to secure a larger loan to purchase their property.
“Undoubtedly, the SDLT incentive has played an important part in this and has presented landlords with an excellent opportunity to bolster their portfolios and invest in higher value properties.
“The private rental market plays a critical role for millions of people and at Keystone Property Finance, we’re committed to supporting our brokers and their landlord clients by offering a wide range of innovative solutions.
Product choice in the buy-to-let market is broadening but rates are also on the rise, the latest analysis from Moneyfacts.co.uk has revealed.
Figures released today show availability of products is at a one-year high, having risen for the fifth consecutive month to reach 2,333.
Moneyfacts said the sector had recovered to 81% of pre-pandemic levels (compared to 68% recovery in the residential sector) and now offered the highest number of products seen since last March, providing landlords with a greater level of choice.
To find out more about how we can assist you with your Mortgage requirements, please click here to get in touch
Yet, at the same time, the average two-year fixed rate was 0.28% higher year-on-year – at 3.05% was the highest recorded since June 2019 (also 3.05%).
The five-year equivalent at 3.41% increased 0.17% compared to a year ago and was currently the highest since September of 2019, when it reached 3.44%.
Month-on-month, the only borrowing tiers where rates had fallen since February were at 60% loan-to-value (LTV).
Moneyfacts also revealed how the proportion of the fixed rate buy-to-let sector which was offering fee-free deals or incentives – such as free valuations or free legal fees – had also reduced year-on-year.
This, Moneyfacts, said, indicated landlords may have to search a little harder for deals with the right incentive package for them.
Meanwhile, the proportion of the market where cashback was available has risen to 25% – a 4% improvement on last year.
Eleanor Williams, finance expert at Moneyfacts.co.uk, said: “There is no doubt that the impact of the pandemic has been polarising, with the buy-to-let sector not escaping from this trend.
“There may therefore be landlords whose focus will be on cutting costs and increasing margins where possible, perhaps by refinancing their existing buy-to-let mortgages.
“Equally, there may be some who are now in the fortunate position of being able to consider investing in a rental property for the first time.”
Williams also explained how the only LTV tier where average fixed rates did not increase this month was at 60% LTV, where both the two and five-year average fixed rates fell by 0.38% and 0.27% respectively.
She added: “It is important to note though that these are averages, and therefore while representative of the market as a whole, there are some very competitively priced products available, with some – depending on LTV and criteria – available at below 2%.
“Therefore, those who are hoping to refinance or take on a new deal would do well to shop around.”
Data shown is as at first working day of month, unless otherwise stated. The % shown is the proportion of deals out of the fixed mortgage market. Source: Moneyfacts.co.uk
A property lawyer is forecasting a surge in buy to let purchasing in the coming months as the stamp duty extension and the promise of low interest rates form an irresistible combination for investors.
That’s the view of property law firm Wilsons which believes Chancellor Rishi Sunak’s Budget will spur new investors.
In the fourth quarter of 2020, 61,800 buy to let properties were purchased, the highest quarterly figure since 2017. Wilsons says the SDLT holiday was a significant contributor to this upturn in property transactions.
Buy to-let investors have purchased 102,267 properties since the SDLT holiday came into effect in July 2020.
To find out more about how we can assist you with your Mortgage requirements, please click here to get in touch
Imogen Lea, a tax consultant at Wilsons, says: “The welcome three-month extension to the SDLT holiday gives potential property investors a second chance to purchase with no SDLT up to £500,000.
“The extension to properties valued at £250,000 or less, which will be introduced in July and run to September 30 could see more sustained growth in buy to let investments in parts of the country where property prices are lower, or in smaller dwellings.
“The million-dollar question, is whether this will be enough to keep the market buoyant in the medium and long-term?
“Landlords are also hoping that the end of the lockdown will see young professionals, many of whom have spent much of the crisis staying at their parents’ homes, return to renting in city centres.”
Lea concludes: “Interest rates in the UK are likely to remain low for the foreseeable future, which should attract more investment to the residential property market versus virtually zero interest on bank deposits and government bonds.”
Landlords set up 41,700 buy-to-let limited companies in 2020, an increase of 23% on 2019, research from Hamptons has found.
Using a limited company enables landlords to save on tax after the reduction in mortgage tax relief.
Aneisha Beveridge, head of research at Hamptons, said: “Despite growth of the private rented sector slowing in recent years, an increasing proportion of buy-to-let purchases are now being held in limited companies.
To find out more about how we can assist you with your Mortgage requirements, please click here to get in touch
“We estimate that around half of all rental properties bought today are being put into a company, up from close to one-in-five during 2016.
“While most of this growth has been driven by larger landlords, smaller landlords, particularly those who are higher rate taxpayers, have also reaped the tax saving benefits from incorporating.”
More companies were set up to hold buy-to-let properties between the beginning of 2016 and the end of 2020 than in the preceding 50 years combined.
At the end of 2020 there were a total of 228,743 buy-to-let companies up and running, an all-time record.
Southern-based landlords have been most likely to incorporate. Given the high cost of property, generally landlords based in the South are more likely to be mortgaged which means that in cash terms their mortgage interest bill is likely to be higher.
Therefore the benefits of incorporating a buy-to-let portfolio into a company are likely to be bigger.
More than a third (34%) of all companies set up to hold buy-to-let properties in 2020 were in London. Together, London and the South East accounted for almost half (47%) of all incorporations.
Beveridge added: “As the company buy-to-let market has matured, more mortgage lenders have entered the space.
“Back in 2016 there were just a handful of lenders who offered company buy-to-let mortgages, often at a greater premium than today.
“But with more high street names entering the limited company space in recent years, competition has driven down interest rates to within a percentage point of similar products designed for landlords purchasing in their own name.
“December marked the first time since the onset of the pandemic that prospective tenant numbers surpassed 2019 levels.
“At the same time, the number of rental homes on the market fell by double-digit percentages in every English region outside London.
“This has driven rental growth up significantly over the last three months to a point where rents are rising faster than house price growth in almost every region.”
More money needs to be made available to support buy-to-let landlords during the existing Covid-19 pandemic, according to safeagent.
The letting agent accreditation scheme for lettings and management agents operating in the private rented sector has expressed fresh concerns that the challenges in the private rented sector are only going to increase as the pandemic continues to put a strain on the economy.
Safeagent is calling on the government to do more to help landlords with tenants who are facing financial hardship and unable to pay the rent, especially in light of the fact that repossession cases on the grounds of rent arrears will not be treated as a priority until tenants have built over a year’s worth of rent debts.
To find out more about how we can assist you with your Mortgage requirements, please click here to get in touch
Added to this is the six months’ notice that landlords now have to give. Where the case is disputed, even before the pandemic, courts were taking an average of almost six months to deal with cases, with the backlog now likely to be longer.
The Financial Conduct Authority (FCA) has issues its updated coronavirus guidance ‘Mortgages and Coronavirus: Payment Deferral Guidance’, stating that firms should allow customers to extend ongoing payment deferrals after 31 March 2021, to cover payments up to and including July 2021, but safeagent argues that a mortgage deferral alone is not the answer for buy-to-let landlords.
Isobel Thomson, safeagent chief executive, said: “It’s positive to see the FCA supporting borrowers impacted by the pandemic with this latest guidance which advises lenders should offer up to six months of mortgage payment deferrals and guarantee it won’t affect a landlord’s credit rating.
“However, while buy-to-let landlords impacted by tenants’ rent arrears clearly need support, we question if deferral of mortgage payments is the answer, or if it pushes the problem further down the track. While lenders will be adhering to the guidance which provides up to six months deferral, we know it may take badly affected tenants much longer to get back on their feet, meaning landlords could be building up debt and struggling to meet mortgage payments for many months to come.
“We know the good work that agents and landlords are doing to sustain tenancies where tenants are in financial difficulties. But it’s vital that if we are going to keep landlords in the PRS, their financial viability is also maintained, ensuring no unnecessary reductions in the supply of rented housing and helping prevent homelessness.
“We believe there is more to be done. Our recent proposals for a sustainable post COVID PRS suggested that those landlords who build up debt because they are unable to pay entirely or are only partially paying what is due on their mortgage due to a shortfall in their tenant’s Universal Credit, should be eligible for a grant from the Government, similar to the coronavirus small business grant. This would recompense them for the shortfall on their mortgage and any additional interest over the period. This is particularly important for landlords with a small number of buy to let properties, who rely heavily on this income.
“safeagent is also calling on lenders to commit to no exclusions terms in new or existing buy-to-let products that prevent lettings to tenants who are claiming benefits. This is important to ensure tenants on benefits can continue to access the PRS now and in the future.”
The Covid-19 pandemic has pushed landlords to broaden the types of property and locations they are looking to invest in, according to analysis from Leeds Building Society.
The mutual noted that industry data suggested that the volume of applications for buy-to-let mortgages held up better than for residential loans between March and the middle of July.
Matt Bartle, director of products at Leeds Building Society, said: “In terms of the volume of applications over this period, the buy-to-let market fell less steeply and recovered more quickly than residential.
“We’ve also seen increased purchase activity; suggesting landlords are taking advantage of a combination of factors, including stamp duty relief, low interest rates and tenant demand.”
To find out more about how we can assist you with your BTL Mortgage please click here
The society’s own research with landlords, as part of its ‘lockdown learnings’ series, supports this, with 79% of landlords who were considering purchasing a buy-to-let property before the pandemic saying their plans had changed. This doesn’t mean they are withdrawing though, with half saying they still want to buy but are taking a fresh look at their plans.
Of those surveyed, almost a third (29%) are reconsidering the type of property they want to invest in, while the same proportion are also looking at new locations. Around one in five (20%) of landlords are reassessing precisely how much they are willing to invest, with almost a quarter (22%) rethinking their timings.
However, half of the landlords surveyed saying they hadn’t been planning to buy before lockdown, and still have no plans to do so.
Bartle added: “Bearing in mind the changes that coronavirus has brought to all our lives it’s not surprising to see landlords reviewing future plans for their property portfolios as tenants’ needs and priorities are also affected by the pandemic.
“The recent Government announcement on stamp duty appears to be spurring prospective purchasers into action, including buy-to-let landlords.”
Buy to Let landlords in England should be assessing the energy efficiency works that their properties require in advance of the opening of online applications for the Green Homes Grant in September, say tax and advisory firm, Blick Rothenberg.
Heather Powell, Property partner at the firm said:
“The applications for the grant will open in just over a months’ time so Buy to Let landlords need to assess their properties now and get their applications in as fast as possible because thousands of people will apply.
“It is also likely that the Government will tighten energy efficiency regulations still further in 2021, making these works essential for many rental properties.”
“The grant scheme will fund £2 of every £3 spent by a landlord, up to a maximum of £5,000, to improve the energy efficiency of their properties.
“Works can include wall and loft insulation, draught proofing and double glazing, all works that should improve the Energy Performance Rating (“EPC”) of a property.
To find out more about how we can assist you with your BTL Mortgage please click here
“Landlords cannot let properties with an energy performance rating of F or G (unless they qualify for an exemption) so they should be planning to undertake works that can be done with the grant funding that is being made available. Their tenants will also benefit as they will get a reduction in their annual fuel bills.”
“The 27 million homes in the UK, which generate up to 25% of the greenhouse gas emissions and energy demand in the UK, are some of the least heat efficient homes in Europe.
“The Government hopes the grants will improve these statistics and help the UK to meet the commitment to have net zero greenhouse gas emissions by 2050.
“Online applications by landlords will be passed to “registered local tradesmen” to do the necessary works – which the Chancellor expects to help generate a further 100,000 jobs in the “Green Sector.”
“There are c2.2m landlords in England, with an average of 1.8 properties each – a total of 3.96m buy to let properties.
“If landlords applied for grants to improve the energy efficiency of just 25% of their properties, and got an average grant of £3,300 for insulation, the Green Homes Grant funding would be £3.27bn, and 990,000 homes would have been improved.
“The Chancellor announced £2bn to fund grants in 2020/21, and stated he hopes 600,000 homes to be improved, but he made it clear that his funding was based on estimates of take up of the funding, and indicated it is not capped, which is good news for BTL landlords.”
“The full details of the Green Homes Grants has not been published, but given the Grant funding announced was only for one year it is important that Landlords start reviewing their housing, assessing what work should be done that is eligible for the grant, so that that they can apply for the funding.
“This is one of the few measures announced by the Government in the last three months that assists landlords, and they should make sure that they take advantage of the funding, and at the same time help the UK achieve net zero greenhouse gas emissions by 2050.”
