Growth of Ltd Co BTL marks step change in landlord behaviour

Lending to buy to let investors borrowing via limited companies grew in the first half of the year according to the results of the H1 2016 Limited Company Buy to Let Index.

The number of lenders and products available to limited company borrowers also increased.

According to transactional data the number of buy to let mortgage applications completed by limited companies grew to 30% of all buy to let completions, up from 21% in H2 2015, and 18% in H1 2015. By volume (£m loan amount), the number grew to 30% of all buy to let loans, up from 25% in H2 2015 and 20% in H1 2015.

The number of lenders offering products to limited company borrowers also increased in the first half of the year to 14 from 12 in H2 2015.

The rise was due to existing buy to let lenders introducing limited company products rather than new lenders entering the BTL sector. Lenders offering limited company products now account for 42% of the whole BTL lending sector, up from 30% in H1 2016.

Product numbers increased to an average of 154, up from 147 in the last six months of 2015, although the actual proportion of them as a percentage of the whole BTL market fell due to the increase in product numbers available to individual borrowers.

Whilst average products numbers for limited companies accounted for 13% of all BTL products in H1 2016, it is interesting to note that by the end of June the percentage had risen back to 16% of all BTL products, the same percentage recorded in H1 2015.

Commenting on the results of the index, David Whittaker, Managing Director of Mortgages for Business said:

“Both applications and completions for limited company borrowers appear to have stabilised at around one third of all buy to let business. However this masks a dramatic change in the investment pattern for new purchases where the proportion investing through limited companies has risen from less than 20% by number (25% by value) in the first half of 2015 to over 50% in 2016, with second quarter applications by limited companies running at over 60% of total applications related to purchases of buy to let properties.

This increasing proportion will also drive an increase in the proportion of completions in the next quarter.

There has only been a slight uplift in the proportion of remortgaging activity that relates to limited company borrowers, due to historical investment patterns.

It would, however, appear that some landlords who already own property personally are sitting on their hands somewhat and holding back from remortgaging, probably waiting to see how the economy pans out post-referendum.

With the Chancellor announcing his intentions to lower corporation tax to 15% following the Brexit result, we may even witness more landlords financing buy to let property via corporate vehicles.

“Clearly, the trend for limited company buy to let represents a real step change in behaviour as landlords adapt their investment strategies to mitigate the increased costs brought about by recent changes in the tax regime.”

In March 2016, the number of completed limited company BTL applications more than tripled compared to any other month in the first half of the year as investors, brokers and lenders raced to get deals over the line ahead of the introduction of the stamp duty surcharge which came into effect on 1 April 2016.

Whilst pricing appeared stable across the whole market in the first half of the year, rates for limited company products rose marginally to 4.5% from an average of 4.4% in H2 2015.

This means that limited company products are now 0.8% points more than the average price of a buy to let mortgage (3.7%), due to the increased underwriting costs involved in assessing limited company applications.

Mr Whittaker said:

“Last year I had thought that limited company pricing might come down a bit as some lenders, including our own lending brand Keystone Property Finance, chose to absorb the increased costs and offer the same rates to landlords borrowing both personally and via the limited company route. The fact that this has not happened may encourage more lenders to enter the space.”

Data for the index is obtained from Mortgage Flow, MFB’s bespoke BTL product sourcing software and from its own transactional records.

The index focuses on buy to let lenders with commoditised products for Special Purpose Vehicles operating via intermediaries. Bespoke offerings have been excluded from the data.

The index can be found here


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