Limited company buy-to-let is an underserved market
Nudim Akhtar is a Mortgage Specialist at broker Contractor Mortgages Direct
Limited company buy-to-let has become a key part of the market for landlords.
As the government gradually removed mortgage income tax relief for higher rate taxpayers between 2017 and 2020, limited company buy-to-let became an increasingly prominent part of the market.
Landlords are usually able to borrow more via a limited company, as they are stress tested against an Income Coverage Ratio of 125%, rather than 145% for a higher rate taxpayer operating as an individual.
With this in mind, I’m a little disappointed there aren’t more value-for-money options for landlords operating through a limited company model.
Plenty of specialist lenders have gotten involved in the market, but too many charge onerous upfront fees – some are around 2.5% of the loan amount, which gets seriously expensive when you’re talking about high value mortgages in and around London and the South East.
There’s also a lack of high street options.
The biggest name in the market is probably The Mortgage Works, Nationwide’s buy-to-let brand, but its limited company products are more expensive than regular buy-to-let.
This is something I struggle to understand.
I don’t see how a buy-to-let landlord operating through a limited company is riskier than an individual buy-to-let landlord – ultimately the onus is on the borrower to repay the mortgage, regardless of how things are structured.
Indeed, some of the specialist lenders price limited company products the same as regular buy-to-let, but ultimately all their rates are relatively high.
All this is to say, currently it feels like landlords are being punished by operating through a limited company after being pushed in this direction by HMRC. Their tax savings are ultimately going to mortgage lenders instead of the government – this doesn’t sit right.
These additional costs will ultimately end up being passed on to the UK’s overburdened tenants, while landlords are losing cash they could otherwise spend on upgrading their properties.
Considering how common limited company buy-to-let has become, I hope we get more high street mortgage lenders join the market in the years ahead.
For the market to be fairer to the nation’s landlords, and therefore tenants, we surely need more competition to ensure our lenders have to work harder for our business.
The 3% stamp duty surcharge of 2016 dampened down the market four years ago, but appetite from landlords is currently stable.
Indeed, you only have to look at how enthusiastic landlords have become about buying properties after the government introduced the stamp duty holiday this year to know that demand is there.
We need more lenders to step up to the plate, while I’d like to see the current cohort be kinder with their fee structures.
As a broker I’m paid to find the best deal for my clients – there’s definitely a gap in the market for a lender to secure my business and offer my landlords a fantastic, competitive service.