Alan Cleary is managing director of Precise Mortgages
It doesn’t surprise me to read that, for the first time, more than half of lenders are now offering limited company buy-to-let mortgages.
According to a recent article in Mortgage Introducer, 59% of all buy-to-let lenders offered products to landlords running their buy-to-let business as a limited company in the second quarter of the year.
It’s all part of a resetting of the market which has seen growing numbers of casual landlords exiting the sector and the arrival of more professional landlords who are in it for the long-term, investing in the right strategies, in the right properties, in the right areas.
It’s easy to understand why more borrowers are now operating as limited companies. They’re not affected by the phased reduction in mortgage tax relief, so all interest can be offset against profits from rental income.
Furthermore, applications are stress tested at an interest coverage ratio (ICR) of 125% instead of the 145% ICR most lenders apply to individual landlord applications.
The rise in limited company landlords is reflected in our own research which found that 55% of landlords intend to purchase their next buy-to-let property within a limited company structure (up from 53% in Q1). The figure rises to more than 70% for landlords with 11 or more properties.
In this changing market, it’s crucial that landlords can explore new areas that are opening up.
Here at Precise Mortgages, we’re always trying to think of new ways to help more landlords get the buy-to-let mortgage they need to optimise their investment opportunities.
To help this growing demographic of landlords develop their buy-to-let business, we’ve extended our top slicing offering across our entire buy-to-let range, including limited companies, portfolio landlords, Houses in Multiple Occupations (HMOs), and holiday let and student let applications, as well as personal ownership landlords (first-time buyers are excluded).
By making top slicing available across our entire range, we’re opening up more options to more customers, particularly those who might have been restricted by ICR requirements in the past.
As long as the landlord’s rental income meets a minimum 110% of the product pay rate, landlords can now use their surplus income to demonstrate they can meet any financial stresses on their new property application, rather than through the rental income of that property alone.
They can achieve this using the rental income of the property (the historical method), the rental income from their wider portfolio, their personal earned disposable income or a combination of the different methods.
We’ve also made it easier to access top slicing via our online mortgage system.
At the end of the process, you’ll be shown the products and loan size available using rental income alone, as well as top slicing.
With more landlords choosing to run their buy-to-let business as a limited company, it’s important that they’re given the choice to enable them to pursue their goals – a choice of products, the choice to explore new opportunities and a choice to manage their portfolio in the way they want.