The expected rise is due to the favourable tax treatment of incorporated businesses
Around one in two mortgage brokers expect the volume of buy-to-let portfolio limited company lending they write to increase in the next 12 months, according to specialist lender Paragon Bank.
The research, undertaken by BVA BDRC for Paragon’s Mortgage Intermediary Insight Report, showed 49% of intermediaries forecasting a higher volume of buy-to-let mortgages written to portfolio landlords operating through limited companies over the period. A further 38% anticipates more non-portfolio limited company business.
Meanwhile, just 14% of brokers expect more personal name portfolio business in the period, with 6% expecting growth in personal name non-portfolio buy-to-let lending.
The study also found that while mortgages written to portfolio landlords operating through limited companies currently accounted for just under a quarter of cases placed, brokers predicted this figure would rise due to the favourable tax treatment of incorporated businesses.
“With such a strong emphasis on the specialist section of the market, lending to landlords operating as limited companies has long been one of Paragon’s strengths, and we’ve seen an increase in this type of business in recent years,” commented Louisa Sedgwick (pictured), commercial director of mortgages at Paragon Bank.
“Owning properties through limited company structures can be more tax efficient because of the ability for investors to offset finance costs, such as mortgage interest, against rental income. In addition, those applying for mortgages through limited companies are often stressed at 125%, compared to the 145% that landlords applying as individuals are subject to.”
Sedgwick, reacting on the study’s findings, added that while limited company structures may not be the best option for every landlord, these advantages are becoming even more evident in the current market, where the unsettled economy has made it necessary for lenders to tighten up stress testing.
“This is why I think the brokers we spoke to have got it spot on, and we’ll continue to see a shift towards more limited company lending,” she said.
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