It is certainly a challenging period for buy-to-let landlords, with a host of recent Government-implemented changes threatening to cause long-lasting harm to the sector.
The phasing out of mortgage interest tax relief, the introduction of the 3% Stamp Duty surcharge on buy-to-let and second homes and the Right to Rent scheme, amongst others, have led a number of landlords to leave the market.
Those that remain will be left with increased tax bills moving forwards, with many left with little alternative but to increase rents. Many will also be thinking how best to conduct their commercial and business duties.
Limited Companies
To avoid being badly hit by the changes to mortgage interest tax relief, a number of investors are looking to set up company structures in order to manage their rental assets.
This has been highlighted by the substantial rise in mortgage lending to buy-to-let landlords via limited companies. Now, this number looks set to increase further, thanks to a rise in the number of mortgage products being aimed at limited companies.
The most recent research from Moneyfacts indicates that the proportion of buy-to-let deals available to limited companies has doubled during the last year.
BTL deals for LTD companies doubles in last year
Shift in Focus
Charlotte Nelson, finance expert at Moneyfacts.co.uk, noted: ‘It feels like the BTL market has been hit from all angles recently, and this has left landlords feeling vulnerable and wondering whether it is still worth continuing in the BTL sector. This has resulted in a shift in focus to limited companies, away from individual ownership, which is influencing not just landlords but also providers offering BTL mortgages.’[1]
‘As the reality of April’s tax changes starts to bite, the proportion of deals available to limited companies has grown dramatically, having increased by 7% in just six months. With the extra pressure in the BTL market and the added interest in limited companies, it is no surprise that lenders have leapt into action and started offering more deals to limited companies,’ she continued.[1]
Concluding, Nelson observed: ‘Despite the boost in product numbers, borrowers considering this type of mortgage should be aware that they could find themselves on a more expensive deal compared to the rest of the BTL market. For example, the average two-year fixed rate BTL mortgage for those applying as a limited company stands at 4.22% today, whereas the average two-year fixed rate for the rest of the market is significantly less at 2.97%. With all the extra legwork a limited company option entails, any borrowers considering it should consult a financial adviser to ensure it is the right route for them.’[1]
[1] https://www.landlordtoday.co.uk/breaking-news/2017/5/btl-deals-available-to-limited-companies-double-in-a-year