ABOUT THE AUTHOR
Kevin Rose is the editor of BestAdvice. He has been a business and finance journalist for 22 years and has been writing about the mortgage industry since 2001.
He has also written for a large number of newspapers and trade titles, including the Independent, i Paper, What Investment and Money Management.
In addition, he presents BestAdvice’s weekly podcast for mortgage intermediaries, Sound Advice.
ABOUT THIS RESEARCH
This BestAdvice Intelligence report gives financial advisers and brokers a clearer picture of the key limited company buy-to-let providers delivering products to the intermediary market.
It aims to bring clarity to the sector, to deepen understanding of the propositions available, and help advisers understand which providers operate in which market segments, where their sweet spots are and how their propositions differ.
All limited company buy-to-let lenders were approached for this report. We thank the providers that supplied us with complete data for their forward-thinking and transparent approach. Those that did not repond to the questionnaire or actively declined to take part are not featured. We hope they will be involved with next year’s report.
We also conducted online research with 66 mortgage intermediaries and spoke to numerous industry experts. All data was collected in November 2020.
We thank all providers, intermediaries and other industry stakeholders who contributed to this report.
Financial intermediaries can access a number of providers operating in the limited company buy-to-let market.
Providers have, with some notable exceptions, opted to disclose data to the intermediary community through this report. This gives advisers a clearer view of a market which looks set to continue its growth in popularity over the coming years.
The collaborative approach of providers contributing data to this report helps improve the transparency of the limited company buy-to-let sector.
- Advisers expect the proportion of their income generated from limited company buy-to-let to increase over the next two years, with 90% of advisers expecting it to account for up to 30% of their income
- A majority of advisers are seeing an increase in demand for limited company buy-to-let
- Only one lender is currently offering limited company buy-to-let up to 85% loan to value, after a number of lenders pulled their higher LTV deals during the first lockdown
- The median loan to value for a limited company buy-to-let mortgage is 71%
- For 70% of advisers, Brexit isn’t expected to have a detrimental effect on expat clients who are looking for limited company buy-to-let finance
- A slight majority of advisers make recommendations to clients as to where they could obtain suitable tax advice
- 48% of advisers find writing limited company buy-to-let more onerous than standard buy-to-let
- Rate is the most important factor when recommending a limited company buy-to-let product, followed by maximum LTV and criteria
- Lack of client demand and inadequate knowledge are among the top issues advisers gave for not writing more business
- Product incentives are not as commonplace in limited company buy-to-let as with mainstream mortgages
- There is no consensus as to what average LTVs will look like in 12 months’ time, although twice as many expect a decrease than increase
CHAPTER 1: ADVISER INTERACTION WITH LIMITED COMPANY BUY-TO-LET
“It’s hard work but you’re dealing with serious, professional clients”
“Keep it simple and deal with facts. Do not give advice on tax; ask clients to take independent tax advice”
Limited company buy-to-let is a specialist form of buy-to-let lending. It has become a key part of a number of specialist lenders’ product offerings since the-then Chancellor, George Osborne, introduced an extra 3% stamp duty tax on buy-to-let purchases in April 2016.
At the same time, Osborne also started reducing the tax relief for mortgage interest payments for buy-to-let landlords from 40-45%, with it being scrapped in April 2020.
Limited company buy-to-let offers tax benefits to higher-rate tax-paying landlords, as limited companies are liable for the lower rate of corporation tax as opposed to income tax charged on earnings generated from rental income.
With a limited company or Special Purpose Vehicle (SPV) in place, landlords can, if required, expand their portfolios quickly and in a tax-efficient way.
This does create a need for effective tax advice and mortgage advisers have repeatedly been warned that this is not something they should offer. However, a number of advisers state that they have recommended accountants in order to start the limited company buy-to-let process off effectively.
There are no accurate figures for the size of the limited company buy-to-let lending. UK Finance, which is responsible for creating data for all mortgage lending in the country, does not drill down into buy-to-let lending to provide any limited company data.
That said, limited company buy-to-let lending often accounts for up to 50% of a specialist lender’s total buy-to-let lending volumes.
Advisers who completed the survey report a 64 percentage point divide between those who are Directly Authorised (17%) as opposed to being an Appointed Representative (83%).
The latest data on regulatory arrangements in the UK mortgage market as a whole dates back to 2018, when there were 5,210 directly-authorised mortgage intermediary firms.
The FCA stated that those firms employed 34,105 approved people, and that there were an additional 14,169 appointed representatives as of 10 January 2018.
The vast majority (86%) of advisers surveyed believe that the current regulatory environment for limited company buy-to-let lending is sufficient.
None of the advisers surveyed raised any issues with limited company buy-to-let regulation.