In a recent report by Paragon Bank, it has been estimated that approximately 50% of mortgage brokers anticipate a surge in buy-to-let portfolio limited company lending over the next year. As the housing market struggles to stay afloat, Mortgage Introducer reached out to brokers specializing in this area to uncover the reasons behind this trend.
Imogen Sporle, Managing Director at Finanze Property, is among those who foresee an increase in buy-to-let portfolio limited company lending in the coming months. Sporle explained that this expectation is not new and has been growing steadily each year, as owning buy-to-let properties in one’s personal name is considered a thing of the past.
“Even first-time landlords now opt to set up Special Purpose Vehicles (SPVs) to purchase their properties, recognizing the long-term benefits as their portfolio expands,” Sporle explained.
Sporle emphasized that this segment of the buy-to-let market offers advantages due to the attainable tax benefits. Unlike standard buy-to-let deals, which can be taxed at rates of up to 45%, limited company operators are subject to a maximum tax rate of 25%.
Looking ahead, Sporle predicts that more lenders will begin offering limited company buy-to-let products, if they haven’t already. She stated, “While there has been a steady rise in this type of buy-to-let over the past five years, there are still several lenders that need to start offering these products.”
Justin Moy, Managing Director at EHF Mortgages, noted that buying properties within a limited company structure has been popular for several years. This is primarily due to the increased borrowing power and improved taxation situation, which outweigh slightly higher mortgage rates.
“Fully offsetting interest costs against rent has been a significant incentive for those in higher tax brackets. Moreover, the flexible ownership of the property through shared distribution of the company makes it an attractive way to manage elements of inheritance tax planning,” Moy explained.
Moy added that the ability to borrow more than what is typically achievable in personal names, coupled with reduced overall tax costs, are the main benefits behind the surge in buy-to-let purchases made through limited company arrangements at EHF Mortgages. As more lenders enter this market, rates have become more competitive. Moy believes that once rates stabilize, this sector will experience substantial growth.
Rhys Schofield, Director at Peak Mortgages and Protection, anticipates a rise in buy-to-let portfolio limited company lending for two reasons. Firstly, he attributes the surge to the increasing reforms and added costs that deter casual and “accidental landlords” from the market. However, serious investors are taking advantage of the high demand for rentals and acquiring properties in a more favorable purchase market.
Secondly, Schofield emphasizes that owning a buy-to-let property in one’s personal name no longer allows for interest rate deductions against profits for tax purposes. Consequently, many clients find it logical to opt for the limited company route, as it can mean the difference between a portfolio that generates profits and one that incurs losses in many cases.
Elliott Culley, Director at Switch Mortgage Finance, notes that portfolio landlords are capitalizing on the departure of smaller or accidental landlords from the market due to current rate turmoil and profit constraints. Culley believes that placing a buy-to-let property within a limited company is more cost-effective for portfolio landlords.
“Most portfolio landlords have accumulated profits in recent years and are now seeking to take advantage of the opportunity to purchase properties at lower prices,” Culley stated.
Culley also observed a growing interest in houses in multiple occupation (HMOs) or multi-unit freehold properties, as they offer better rental yields compared to traditional buy-to-let properties.