Buy-to-let lending to limited companies soared to nearly 38,000 mortgages in the first quarter, higher than the total for the whole of 2014, as landlords tried to lessen the impact of the government’s stamp duty hike.
A report from Kent Reliance found the surcharge led to a 176 per cent increase in buy-to-let purchases in March, while the number of loans issued to limited companies doubled in 2015 and could be within touching distance of 100,000 in 2016 as landlords reacted to tax changes.
Borrowing through a company structure means investors are taxed on profits at lower corporation tax rates and can offset all finance costs against rental income.
Landlords looking add to buy-to-let portfolios before the 1 April deadline increasingly used limited company structures to get round the rules, although only a handful of high street banks offered such structures, with specialist lenders picking up the slack.
Kent Reliance’s data showed mortgage applications via limited companies increased by over 80 per cent in 2015 compared to 2014. In total, limited company loans accounted for more than one in five buy to let mortgages last year, nearly 55,000 across the buy to let whole market.
In the first three months of the year, just under 38,000 loans were issued to limited companies, nearly four times the number issued in the same period in 2015.
According to Kent Reliance’s survey of over 1,000 property investors, run in association with BDRC Continental, a third of landlords are considering limited companies and 7 per cent have already done so.
The firm therefore estimates that limited company loans will total 98,400 in 2016, nearly 40 per cent of the total number of buy-to-let loans, and nearly three times its share of the market in 2014.
Andy Golding, chief executive of OneSavings Bank, which trades under the Kent Reliance and InterBay brands in buy-to-let, admitted the market now sits firmly in the crosshairs of both politicians and regulators.
“Thousands hurried purchases to beat the stamp duty deadline, and the popularity of limited companies is soaring as investors seek to reduce tax exposure,” he stated.
“But it is tenants who are feeling the real brunt. Rents are rising, and landlords will increase them further as they pass on the increased cost of running their businesses. Far from supporting tenants, recent intervention will see them bear a heavier financial burden.”
The research also revealed remortgaging activity has risen faster than purchase activity, as borrowers look to take advantage of increasingly attractive fixed rates. February saw remortgaging up by 63 per cent year-on-year, compared to 30 per cent for house purchase.
The conclusion of the Prudential Regulation Authority’s consultation on underwriting is likely to slow growth in some sections of the buy-to-let market, as affordability criteria tighten, noted Kent Reliance; although a side effect could be a more rapid increase in rents for tenants as landlords seek to demonstrate higher rental cover.
“When the implementation date becomes public knowledge, it could create a second spike of activity in 2016, as landlords move to take advantage of more relaxed criteria while they can,” read the report.
“Equally, it could boost demand for remortgages, as portfolio landlords release equity from current properties to give them greater deposits for purchases, bringing down mortgage interest payments so they can meet more stringent rental cover criteria.”
peter.walker@ft.com
