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Around 80% of Buy-to-Let Mortgage Applications made by Limited Companies
This article is an external press release originally published on the Landlord News website, which has now been migrated to the Just Landlords blog.
Almost four out of every five pounds lent for buy-to-let purchases via Mortgages for Business was borrowed by a limited company landlord in the third quarter (Q3) of the year, according to the firm’s latest Limited Company Buy-to-Let Index.
Around 80% of Buy-to-Let Mortgage Applications made by Limited Companies
This represents 79% of completing buy-to-let purchases by value, up from 73% in Q2.
The index also shows that mortgage activity by landlords using limited companies remained high generally throughout the quarter. Limited company transactions (for purchases and remortgages) accounted for 48% of buy-to-let completions in Q3 by number of mortgages, and 47% by value of lending.
The increase in the use of limited companies by landlords is also reflected in statistics held by Companies House, which show that there was a spike in registration for Special Purpose Vehicle (SPV) limited companies (with property related SIC codes) in 2016, following the 2015 Summer Budget, in which the former chancellor, George Osborne, announced changes to mortgage interest tax relief for individual investors.
Steve Olejnik, the COO of Mortgages for Business, comments: “There was, unsurprisingly, a spike in SPV registrations last year, but it looks like the numbers have been increasing for considerably longer than might be expected. Looking at historic registrations, numbers have been on the rise ever since 2008, which, I’m sure you can guess, was not a popular year to start a property company.
“That said, the 2015 Summer Budget has noticeably sped things up, with 2015 and 2016 showing the strongest growth in registrations in the sample, whether proportionally or in absolute terms. Over 20,000 new SPVs were registered in the year so far compared to c.13,000 in 2014 – scaling up suggests a figure somewhere just shy of 35,000 by the end of the year, an increase of c.35% over 2016.”
He explains: “Landlords are turning to SPVs because of the benefits they bring in the form of tax efficiencies and softer affordability testing. Switching to corporate structures is not without risk, however, and we recommend all our clients take professional tax and finance advice before deciding how to proceed.”
The index also reveals that pricing of buy-to-let mortgages available to limited companies saw a marked contrast between fixed and variable rate products. While fixed rate products experienced no change in pricing for two, three or five-year terms, variable rate products saw a sharp drop in pricing, down by 0.4% to 4.0%. These products are now competitive with their fixed rate counterparts.
