Sharp rise in limited company buy-to-let applications
An increasing number of buy-to-let landlords are looking to overcome recent government interventions in the market by acquiring property via limited companies, the latest Mortgages for Business’ Limited Company Buy to Let Index has revealed.
Following last year’s increase in the rate of stamp duty payable on buy-to-let acquisitions, and with a phased reduction in income tax relief available on rental income due to start in April, the proportion of purchase applications made through a limited company structure rose by 6% quarter-on-quarter to 69% in Q4 2016.
This is significantly higher than the 21% recorded before the changes to tax relief on mortgage interest were unveiled by former Chancellor George Osborne in July 2015, reflecting the fact that a growing number of buy-to-let landlords are unsurprisingly taking action to mitigate the additional tax costs they will face when tax relief is lowered on mortgage interest payments for individuals. By turning towards incorporation, and borrowing through a company structure, finance costs can still be offset against rental income.
David Whittaker, managing director of Mortgages for Business, said: “The sharp increase in purchase applications made by landlords using a limited company structure is unsurprising given the financial incentive to do so, and it is encouraging to see growing numbers of landlords approaching their investments intelligently.
“With the changes to tax relief set to be phased in from April 2017, this trend is unlikely to be reversed any time soon.”
Despite the growth in the number of purchase applications made via limited companies, the number of lenders and products catering to this part of the market remained flat between Q3 and Q4, with just 14 lenders offering products to limited companies.
Whittaker added: “Although many mainstream lenders do not yet have an offering for investors using limited companies, many smaller lenders have significant expertise when it comes to servicing this part of the market.”
If you have any comments, please email the author of this article and click on the link above