Limited company BTL borrowing beats landlords

Limited company BTL borrowing beats landlords

Buy-to-let (BTL) borrowing via limited companies has surpassed personal borrowing by landlords for the first time as people look to avoid extra tax on their investments.

More than half (51 per cent) the value of BTL lending in the second quarter of the year was provided to limited companies, according to the latest edition of the Limited Company Buy to Let Index from Mortgages for Business.

Some 73 per cent of purchases were performed by limited companies, up more than 10 per cent from 62 per cent in the first quarter.

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High levels of purchase activity underpinned a rise in limited companies’ share of lending by volume, which climbed from 63 per cent to 76 per cent in Q2.

The surge in limited company lending has been driven by landlords looking to avoid the gradual phasing out of tax relief on buy-to-let investments, which means personal borrowers will not be able to be able to deduct all of their mortgage interest when they work out their profits.

But recent research has shown higher rates on limited company BTL mortgages could in fact leave landlords who incorporate more than £1,000 worse off than their personal borrower counterparts.

There are signs the market is responding to higher demand for limited company products, however.

 Mortgages for Business has reported a 0.4 percentage point fall in average three and five-year BTL fixed rates to 3.7 per cent and 4 per cent respectively.

The decline has narrowed the the gap with the wider market, with the average three-year fixed rate across all buy to let products just 0.2 percentage points lower at 3.5 per cent.

Steve Olejnik, chief operating officer of Mortgages for Business said: “Landlords are increasingly looking to limited company structures because of the benefits they bring in the form of tax efficiencies and softer affordability testing.

"The structures are not without their hurdles, however, and we recommend all our clients take professional tax advice before deciding how to proceed.”

Mike Richards, director at London-based Mortgage Concepts Associates, commented: “The main thing is, initially you must take tax advice from an accountant. If you only have one or two properties as a lower rate taxpayer, it can be best to do it personally.

“The problem is most of the traditional lenders are still lending to private individuals only. The alternative lenders who are lending to limited companies are not necessarily your standard buy-to-let lenders. 

“I think at some point they will change, but [high street lenders] will probably take a long time to provide the product. They have got to put a lot of things in place.”