Mortgages for Business has today published the first Limited Company Buy to Let Index to track lending activity in this niche but growing sector of the mortgage market.
Read the Limited Company Buy to Let Index H1 2015.
Data for the index has been obtained from Mortgage Flow, MFB’s bespoke BTL product sourcing software and from its own transactional records.
The index focuses on mainstream buy to let lenders with commoditised products for Special Purpose Vehicles operating via intermediaries. Lenders with bespoke offerings including high street banks and the commercial arms of the challenger banks, have been excluded from the data.
Commenting on the creation of the index, David Whittaker, managing director at Mortgages for Business said:
“The proposed changes to tax relief on financing costs is likely to affect the way higher tax rate paying residential property investors choose to finance their portfolios. We anticipate that many will elect to go down the corporate route, particularly Special Purpose Vehicles, so tracking supply and demand could prove a useful indicator on the health of the sector.”
23% of buy to let lenders offer products to limited companies
According to the index, the number of lenders operating in the limited company BTL space was already increasing prior to the Chancellor’s announcement in July. In H1 2015, 23% of buy to let lenders offered products to limited companies, up from 21% in the second half of 2014.
12% of all BTL products available to limited companies
The average number of limited company products offered by lenders also increased in the first half of 2015 to 99 which accounted for 12% of all buy to let products, up from 79 limited company products accounting for 9% of all products in H2 2014.
Products for limited companies cost 0.8% more than for individual investors
The rise appears to be continuing despite limited company products costing on average 0.8% more than products for individual investors. Mr Whittaker said:
“Both trackers and fixed rates are available. As you might expect, pricing is a bit higher than for personal applications because assessing cases requires greater skill and more time. Around half of all products for SPVs are available to 75% LTV although you can expect better pricing at the lower LTV points. There are a few products at 80% LTV and of course, Kent Reliance offers a couple of products at 85% LTV with rates and fees at the higher end – arrangement fees currently 2.5% of the loan amount.
“Most fees are percentage based ranging from 0.5% to 2.5%, although occasionally we see lenders offering deals with no arrangement fees."
c.20% of all BTL transactions made by limited companies
When looking at transactions, the index found that, over the last 12 months, the number of buy to let mortgage applications made by limited companies accounted for c.18% of all buy to let cases. By volume (£m loan amount), limited companies made up c.20% of transactions. At face value this might suggest that limited company borrowers are underserved by products; however, MFB specialises in broking complex BTL scenarios including limited company transactions which may skew the data slightly. Mr Whittaker said:
“In my opinion, the index reveals a fairly healthy quantity of products and should dispel the commonly held belief that there is a shortage of these types of products. As the date for the phased introduction of the tax relief changes draws closer, it will be interesting to see how supply develops over time.”
Loan sizes for applications made by limited companies were typically 10% higher than those made by individual applicants. The index commentary suggests that this is because full-time landlords are more likely to own property in corporate vehicles. Furthermore, the types of property they own tend to be more expensive and complex in nature, e.g. HMOs and multi-unit freehold blocks which typically cost more yet return higher yields.
Read the Limited Company Buy to Let Index H1 2015.
Other research is available from Mortgages for Business including:
Complex Buy to Let Index
This index tracks buy to let mortgage transactions for vanilla buy to let property, Houses in Multiple Occupation (HMO), multi-unit freehold blocks (MUFB) and semi-commercial property (SCP). Results compare average property value, loan size, loan to value and yields. It also tracks the number of lenders operating in the buy to let sector and records the average number of buy to let mortgage products available.
Buy to Let Mortgage Costs Index
Headline buy to let mortgage rates marketed by lenders can often be misleading because they don't take account of fees. This quarterly index aims to outline the real costs of taking out a buy to let mortgage including the impact of fees and charges and underlying cost of funds such as Bank Rate.
Buy to Let Mortgage Product Index
Published monthly the Buy to Let Product Index tracks the number of lenders and buy to let mortgage products currently available in the UK mortgage market.
Property Investor Survey
Designed to gauge the property finance needs of investors and landlords, the anonymous results of each survey are fed back to lenders to help them develop existing mortgage products and design new ones.