Limited company buy-to-let purchases outstrip remortgages

Michael Lloyd

January 18, 2018

In Q4 2017, nearly three-quarters (72%) of buy-to-let mortgage transactions made by landlords operating via limited companies were used to buy property rather than for refinance purposes.

Mortgages for Business Limited Company Buy to Let Index included transaction data in the index include both new applications and completions facilitated by Mortgages for Business.

Steve Olejnik, chief operating officer at Mortgages for Business, said: “To help landlords determine whether using limited companies is the right strategy for them, we’ve been encouraging our clients to take professional advice.

“We will also continue to produce guides and webinars which explain how the tax and regulatory changes might impact their investments.

“The landscape of buy-to-let is changing and it’s important that landlords are equipped to traverse the terrain.”

The findings contradict both the borrowing choices of individual landlords and the wider residential mortgage market where refinancing property has long been the preferred reason for borrowing.

Most of the buy-to-let purchase transactions made through limited companies were related to additional property acquisitions. Although these figures also include landlords selling property they already own personally into a corporate structure.

All transfers of properties from individuals to limited companies must be treated as a new purchase, so don’t qualify as a remortgage.

Throughout 2017, the propensity for landlords to use corporate structures from which to operate their portfolios has continued to grow rapidly.

This change in behaviour was triggered back in July 2015 when former Chancellor George Osborne announced reductions to higher income tax rate relief on buy-to-let mortgage interest and other finance costs.

Since then, stricter affordability guidelines imposed by the Prudential Regulation Authority on personal buy-to-let borrowing has compounded the shift by landlords towards incorporation.

Remortgaging accounted for fewer buy-to-let transactions than purchases because of the relatively short period of time in which limited companies have been growing in popularity.

This number is expected to grow as Early Repayment Charge periods expire, allowing landlords to refinance without penalty.

The proportion of buy-to-let mortgages available to limited companies grew in Q4 from 21% to just under a quarter of all products.

Most of these products are also available to landlords borrowing personally. Average rates for these mortgages rose slightly in the period due to the introduction of additional 5-year fixed rates which are typically higher than their shorter-term counterparts.

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