"BTL properties in your personal name are a thing of the past"
An estimated 50% of mortgage brokers are expecting the volume of buy-to-let portfolio limited company lending to increase over the next 12 months, according to Paragon Bank.
With the majority of the housing market currently struggling to tread water, Mortgage Introducer has spoken with a number of brokers who operate within the space to get to the bottom of why this is the case.
Rise in limited company buy-to-let lending
Imogen Sporle (pictured), managing director at Finanze Property, is among those expecting to write more buy-to-let portfolio limited company lending in the next 12 months.
Sporle said, however, that this expectation increases every year, as owning buy-to-let properties in ‘your personal name is something of the past’.
“Even first-time landlords now set up Special Purpose Vehicles (SPVs) to purchase their properties in, knowing this will be most beneficial as their portfolio grows,” she said.
This area of the buy-to-let market, Sporle said, can beat the curve due to the tax benefits obtainable. Rather than being taxed up to 45% like standard buy-to-let deals, Sporle said those who operate within a limited company will only be taxed at a maximum 25%.
As time goes on, Sporle expects more lenders will start to offer limited company buy-to-let products, if they do not already.
“There has been a steady rise in this type of buy-to-let over the last five years, however there are still a number of lenders out there that need to start offering these products,” she said.
Justin Moy, managing director at EHF Mortgages, said buying within a limited company structure has been popular for a number of years.
He said this is due to more preferential borrowing power as well as the improved taxation situation, which proves favourable even over slightly higher mortgage rates.
“Being able to fully offset the interest cost against rent has been a real incentive for higher rate taxation, but flexible ownership of the property through shared distribution of the company makes it an attractive way to manage elements of inheritance tax planning,” Moy said.
However, Moy said the ability to borrow more than most can achieve in their personal names, and reduce the overall tax costs, are the main benefits and reasons why he has seen over 75% of all EHF Mortgages’ new buy-to-let purchases through this type of arrangement.
He has also seen more lenders in this market, and thus rates have become more competitive; once rates normalise, Moy said we should see plenty of uptake in this area.
Accidental landlords driven from the market
Rhys Schofield, director at Peak Mortgages and Protection, said he is expecting a rise in buy-to-let portfolio limited company lending for two reasons.
“Firstly, all the reforms and added costs of being a landlord are driving dabblers and ‘accidental landlords’ from the market, yet with huge rental demand, serious investors are acquiring stock in a cooler purchase market,” Schofield said.
Secondly, Schofield said if you own a buy-to-let in your personal name and can no longer offset your new interest rate against your profit for tax purposes, he said it is a ‘no brainer’ for many clients to go down the limited company route. He said this could be the difference between a portfolio that actually costs you money, versus one that makes money in many situations.
Elliott Culley, director at Switch Mortgage Finance, meanwhile, said portfolio landlords are taking advantage of smaller or accidental landlords leaving the market due to the current turmoil on rates and the squeeze on profits. He added that placing a buy-to-let in a limited company is more cost effective for portfolio landlords.
“Most portfolio landlords have built up profits in recent years, and are now looking to take advantage and buy property more cheaply,” he said.
He has also seen more interest in HMOs or multi-unit freehold properties where the rental yield is much better.
Have you seen a rise in buy-to-let portfolio limited company lending? Let us know in the comment section below.
