Landlords with bigger portfolios have swung dramatically to using limited company status for new purchases, according to research from Precise Mortgages.
The specialist lender claims this highlights “the ongoing switch in the buy-to-let market” as landlords reshape portfolios.
64% of landlords with more than four properties who plan to buy this year will use limited company status compared with just 21% who intend to buy as individuals.
Across the market as a whole 44% of landlords planning to buy will use limited company status but that drops to 17% among landlords with one to three properties. 37% of smaller portfolio landlords will buy as individuals, the research shows.
Research for Precise Mortgages found more than six out of 10 landlords planning to fund new purchases this year will use buy-to-let mortgages. However, the study found 73% believe lending criteria and portfolio application process changes introduced by the Prudential Regulation Authority are making it more difficult to secure mortgages while 57% say the changes will slow applications down.
Precise said limited company status is growing in popularity as the phased reduction in mortgage interest tax relief does not affect limited company landlords who can continue to offset mortgage interest against profits – which are subject to Corporation Tax of 19% instead of income tax rates.
The interest coverage ratio on limited company applications is also lower than for most individual landlord applications.
Alan Cleary (pictured), managing director of Precise Mortgages, said: “The buy-to-let market is changing and the switch to greater use of limited company status is one aspect of the development underlining the increasing maturity of the sector.
“There are good reasons why limited company buy-to-let is dominating the purchase market and we expect that will continue to be the case this year and next. Brokers and customers however need expert specialist support when buying as a limited company or considering switching to limited company status as there are considerable costs involved.”