Private landlords are likely to favour limited company buy-to-let in the future, believes Foundation Home Loans (FHL).
Landlords to Favour Limited Company Buy-to-Let in Future, Says FHL
The mortgage lender has made the forecast as it signals a change to its rental calculation for individual buy-to-let applications. The company has joined other lenders in tightening its lending criteria in the buy-to-let sector.
Simon Bayley, the Commercial Director at FHL, claims that the advantages of limited company products will become clearer as the reduction in mortgage interest tax relief begins to bite.
As of April 2017, the amount of mortgage interest that landlords can claim against tax will be cut to the basic rate. However, those operating as a limited company will not be hit by the change.
“There is no doubt that with the new restrictions on tax relief which landlords can claim back, and now the hardening of the rental cover calculation, the limited company option is really gaining ground for a greater percentage of landlords, particularly those who are coming to buy-to-let at this point,” says Bayley.
“We have been delighted by the response to our limited company offering, which is priced at the same rate as our individual buy-to-let products. Intermediaries and their landlord clients are recognising the efficacy of a limited company option, and as long as there is a recognition of the pros and cons, the scales are coming down more heavily in favour of this approach.”
He continues: “As a responsible lender, we have heeded the regulator’s calls on affordability and stress testing, and are planning to change the basis of our rental calculation for individual applications from 125% to 145%, although it will not be implemented until mid-June when we make other LIBOR based changes. Limited company buy-to-let products remain unchanged at 125%.
“FHL supports the regulator’s intervention to enhance the way that individual landlords are protected by a more rigorous affordability system, but also recognise that experienced landlords are more than capable of assessing risks surrounding exposure to repayment of a loan in the event of rental shortfall.”
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