More landlords plan to use limited company status
More than two-thirds of landlords with four or more properties intend to use limited company status in order to acquire more properties this year.
A study by Precise Mortgages found that the proportion of buy-to-let (BTL) investors planning to incorporate has grown from 41 per cent a year ago, to 64 per cent.
Meanwhile, 21 per cent of BTL landlords with at least four properties plan to purchase as an individual, the study found.
Across the market as a whole, 44 per cent of landlords planning to buy will use limited company status, but that drops to 17 per cent among landlords with one to three properties.
Some 37 per cent of smaller portfolio landlords will buy as individuals, according to the lender’s research. According to Precise Mortgages, limited company status is growing in popularity as the phased reduction in mortgage interest tax relief does not have an effect on limited company landlords.
The research found more than six-out-of-10 landlords planning to fund new purchases this year will use BTL mortgages.
However, the study found 73 per cent believe lending criteria and portfolio application process changes introduced by the Prudential Regulation Authority are making it more difficult to secure mortgages, while 57 per cent say the changes will slow applications down.
Limited company status is growing in popularity as the phased reduction in mortgage interest tax relief does not affect limited company landlords who can continue to offset mortgage interest against profits - which are subject to Corporation Tax of 19 per cent instead of income tax rates.
The interest coverage ratio on limited company applications is also lower than for most individual landlord applications.
Alan Cleary, managing director of Precise Mortgages, commented: “The buy-to-let market is changing and the switch to greater use of limited company status is one aspect of the development underlining the increasing maturity of the sector.
“There are good reasons why limited company buy-to-let is dominating the purchase market and we expect that will continue to be the case this year and next.
“Brokers and customers however need expert specialist support when buying as a limited company or considering switching to limited company status as there are considerable costs involved.”