Buy to let mortgage applications via UK limited companies rise steeply
More than half of applications from UK landlords purchasing buy to let properties were through a limited company in the third quarter of 2016, the latest index shows.
Some 63% of applications were from limited companies, a considerable rise from just 21% before the changes to tax relief on mortgage interest were announced in July 2015, according to the Limited Company Buy to Let Index from Mortgages for Business.
There is considerable evidence from a number of sources that more landlords in the UK are forming limited companies ahead of these tax relief changes which are due to be introduced in increments from 2017 to 2020.
Mortgages for Business says the rise in applications as recorded by the index represents a sea change in landlord behaviour and includes both new purchases and transfers, that is purchases made by landlords selling their personally owned property to their limited company.
In contrast, the number of remortgage applications made via a limited company has remained at a fairly similar level and aren’t expected to rise greatly until those who have recently used a corporate vehicle to purchase property are free from early repayment charges.
There are also more products available for landlords operating as a limited company. Those available to limited companies now account for 16% of all products, up from 13% in the first half of the year. By number however, availability has remained stable at 195 because the overall number of buy to let products on the market dipped slightly.
The index also reveals the average rate of a buy to let mortgage fell to 3.3% at the end of September, down from 3.7% in June. Of the products available to limited companies, rates fell to an average of 4.3%. This means that rates available to limited companies are only around 1% point higher than the average market value.
‘The proposed changes to tax relief on financing costs is likely to affect the way higher rate tax paying residential property investors choose to finance their portfolios,’ said David Whittaker, managing director of Mortgages for Business.
‘Many lenders with products for both personal borrowers and limited companies, offer the same rates to both,’ he pointed out but added that some of these lenders accept only Specials Purpose Vehicle limited companies while some also offer the same rates to trading limited companies.