Most landlords to be limited companies by April
Using a limited company will become standard operating procedure for most buy-to-let landlords from April 2017, despite them not using the incorporated structure today.
More than 54% of such investors told Mortgage for Business (MfB) they would incorporate in future -- even though two-thirds aren’t ‘Ltd’ currently. At least 15% will keep buying personally.
Some of this latter group know that they might be hit with higher tax bills, as being a company is the “only way” to keep fully deducting mortgage costs against rental income from April, IFA Contractor Money has pointed out.
An additional 15% of the MfB respondents face higher tax bills too, because although they plan to use one of three ‘Ltd’ workarounds to the relief clawback, they will still buy property as individuals as well.
Nevertheless, the bulk of landlords are now “approaching their investments intelligently” to “maximise their returns”, said MfB’s David Whittaker, referring to the 54% who will incorporate to bypass the April rule change.
He added that the proportion of purchase applications -- as measured by the broker -- made through limited company structures climbed to a record 69% in the last three months of 2016.
This represents a substantial jump on the 21% of applications made through ‘Ltds’ before the changes to mortgage tax relief rules were made by George Osborne in the Summer Budget in July 2016.
Yet despite the significant uptick in the number of purchase applications made via limited companies, the amount of products and lenders catering for them has remained flat.
Between Q3 and Q4 2016, the number of lenders offering products to limited companies stayed at 14, even though the number of products available over the period to such companies rose slightly to 198.
But almost seven in ten of the respondents said lenders were still failing to do enough to support them, which the lion’s share said could be shown if lenders relaxed their borrowing criteria.
Since January 1st 2017 however, buy-to-let lenders have been obliged to tighten their affordability calculations in recognition of the increased tax burden being imposed on landlords borrowing personally.
This tightening will affect 60% of the buy-to-let landlords; precisely the same proportion who stand to be affected by the relief clawback, which will be phased in from the same month that second property purchasers will be hit by higher stamp duty.