23% more buy-to-let limited companies established in 2020
Landlords set up 41,700 buy-to-let limited companies in 2020, an increase of 23% on 2019, research from Hamptons has found.
Using a limited company enables landlords to save on tax after the reduction in mortgage tax relief.
Aneisha Beveridge, head of research at Hamptons, said: “Despite growth of the private rented sector slowing in recent years, an increasing proportion of buy-to-let purchases are now being held in limited companies.
“We estimate that around half of all rental properties bought today are being put into a company, up from close to one-in-five during 2016.
“While most of this growth has been driven by larger landlords, smaller landlords, particularly those who are higher rate taxpayers, have also reaped the tax saving benefits from incorporating.”
More companies were set up to hold buy-to-let properties between the beginning of 2016 and the end of 2020 than in the preceding 50 years combined.
At the end of 2020 there were a total of 228,743 buy-to-let companies up and running, an all-time record.
Southern-based landlords have been most likely to incorporate. Given the high cost of property, generally landlords based in the South are more likely to be mortgaged which means that in cash terms their mortgage interest bill is likely to be higher.
Therefore the benefits of incorporating a buy-to-let portfolio into a company are likely to be bigger.
More than a third (34%) of all companies set up to hold buy-to-let properties in 2020 were in London. Together, London and the South East accounted for almost half (47%) of all incorporations.
Beveridge added: “As the company buy-to-let market has matured, more mortgage lenders have entered the space.
“Back in 2016 there were just a handful of lenders who offered company buy-to-let mortgages, often at a greater premium than today.
“But with more high street names entering the limited company space in recent years, competition has driven down interest rates to within a percentage point of similar products designed for landlords purchasing in their own name.
“December marked the first time since the onset of the pandemic that prospective tenant numbers surpassed 2019 levels.
“At the same time, the number of rental homes on the market fell by double-digit percentages in every English region outside London.
“This has driven rental growth up significantly over the last three months to a point where rents are rising faster than house price growth in almost every region.”