Limited company buy to let could become the norm

It’s no secret that the number of borrowers using limited companies to make BTL mortgage applications is increasing.

Like many other industry commentators we expect the figure to continue to grow throughout 2015, as landlords get to grips with new strategies to expand their portfolios in the wake of the government’s proposed tax changes.

When the announcement was first made, in our first Limited Company Buy to Let Index we calculated that as an average across H1 2015, limited company applications at MFB accounted for around 18% of all buy to let transactions. By H2 that figure had risen to 21%.

However, by the end of December 2015 the figure had rocketed to 38% and now, at the end of January, the figure stands at 43%.

Only time will tell if this trend will continue but my gut tells me that for the time-being the trajectory is still upwards.

Fortunately, the number of lenders and products available to limited company applicants is also on the up, which means that for those using Special Purpose Vehicles in particular, there are sufficient options.

Pricing has been a contentious issue of late – whether or not to charge a premium to limited companies.

Personally, I do not think that a premium should be charged for the sake of it; however, I do believe that pricing can be different because of the increased underwriting involved:-

• When lending to an individual, you check him/her out.

• When lending to a limited company, you check out the individuals and the limited company

Clearly there is an increased cost implication to the latter. 

Whether or not lenders choose to pass on the increased cost to the borrower is up to the individual lender. For some time now both Paragon Mortgages and Metro Bank have offered the same rates to SPV limited companies as to individuals. In December Foundation Home Loans decided to follow suit.

So, commercially, they’ve all decided to absorb the cost internally, instead of passing it on to the borrower like the other lenders. The type of corporate structure also has to be taken into consideration.

Assessing trading limited companies is generally more complicated and time-consuming than assessing SPVs and as such I wouldn’t expect the likes of Aldermore Bank, Shawbrook Bank or Keystone to adjust their pricing so that it was akin to their individual rates.

Talking of pricing, we are in the process of analysing the results of our Buy to Let Mortgage Costs Index for Q4 2015 which looks at how fees and other charges impact what borrowers ultimately pay (individuals and limited companies).

The initial findings appear to show that charges (fees, etc.) continue to have a declining impact on total costs. In Q1 2013 charges added an average of 0.67% to the cost of a buy to let mortgage but in Q4 2015, this had gone down to 0.48%.

There has also been a shift in the proportion of products with percentage-based fees which has climbed steadily in the quarter, as lenders look to claw back some margin. The fees charge on flat-fee products have remained static at around £1,500 – the same level it has been since late 2010.

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