Mortgages for Business has reported an increase in the proportion of applications for buy-to-let properties made by landlords using limited companies at the end of 2016.
The firm’s Limited Company Buy-to-Let Index revealed that the proportion of purchase applications made through a limited company structure jumped by six percentage points from 63% in the third quarter to 69% in the fourth. This is substantially higher than the 21% recorded before the changes to tax relief on mortgage interest were unveiled by former Chancellor George Osborne in July 2015.
Mortgages for Business has found that over the past 18 months, landlords’ behaviour has changed substantially as the sector comes to terms with the new tax regime. The increased use of limited company structures includes both new purchases and ‘transfers’, i.e. purchases made by landlords selling their personally owned property to their limited company.
The proportion of remortgage applications made via limited company structures also increased from 23% in Q3 to 31% in Q4. This is a sign that greater numbers of investors are choosing to transfer their properties into limited company names, effectively reducing the proportion of remortgaging applications made by individuals.
However, while there has been a significant increase in number of purchase applications made by limited companies, the amount of products and lenders catering for them remained flat. Between Q3 and Q4 2016, the number of lenders offering products to limited companies stayed at 14. Meanwhile, the number of buy-to-let products available to limited companies increased slightly from 195 in Q3 to 198 in Q4. The proportion of products available to landlords using a limited company as a total of all buy-to-let products remained at 16%.
Data for the index is obtained from Mortgage Flow, the firm’s bespoke buy-to-let product sourcing software and from its own transactional records. The index focuses on buy-to-let lenders with commoditised products for Special Purpose Vehicles operating via intermediaries. Bespoke offerings have been excluded from the data.
“The sharp increase in purchase applications made by landlords using a limited company structure is unsurprising given the financial incentive to do so, and it is encouraging to see growing numbers of landlords approaching their investments intelligently,” said David Whittaker, managing director of Mortgages for Business. “With the changes to tax relief set to be phased in from April 2017, this trend is unlikely to be reversed any time soon.
“Despite the growth in the number of purchase applications made via limited companies, the number of lenders and products catering to this part of the market has remained flat. Although many mainstream lenders do not yet have an offering for investors using limited companies, many smaller lenders have significant expertise when it comes to servicing this part of the market.”