In Q3 2017, nearly four out of every five pounds lent for buy to let purchases via Mortgages for Business was borrowed by a limited company, according to the latest edition of the Limited Company Buy to Let Index. This represents 79% by value of completing buy to let purchases, up from 73% in Q2.
The index also showed that mortgage activity by landlords using limited companies remained high generally throughout the quarter. Limited company transactions (for purchases and remortgages) made up 48% of buy to let completions in Q3 by number of mortgages, and 47% by value of lending.
The increase in the use of limited companies by landlords for their borrowing needs is also reflected in the statistics held by Companies House which show that there was a spike in registrations for Special Purpose Vehicle limited companies (with property related SIC codes) in 2016 following the 2015 Summer Budget when the then Chancellor announced changes to income tax relief on finance costs for landlords borrowing personally.
Commenting on the figures, Steve Olejnik, COO at Mortgages for Business said:
“There was, unsurprisingly, a spike in SPV registrations last year, but it looks like the numbers have been increasing for considerably longer than might be expected. Looking at historic registrations, numbers have been on the rise ever since 2008 which, I’m sure you can guess, was not a popular year to start a property company).
“That said, the 2015 Summer Budget has noticeably sped things up, with 2015 and 2016 showing the strongest growth in registrations in the sample, whether proportionally or in absolute terms. Over 20,000 new SPVs were registered in the year so far compared to c.13,000 in 2014 – scaling up suggests a figure somewhere just shy of 35,000 by the end of the year, an increase of c35% over 2016.
“Landlords are turning to SPVs because of the benefits they bring in the form of tax efficiencies and softer affordability testing. Switching to corporate structures is not without risk, however, and we recommend all our clients take professional tax and finance advice before deciding how to proceed.”
The index also reveals that pricing of buy to let mortgages available to limited companies saw a marked contrast between fixed and variable rate products. While fixed rate products saw no change in pricing for two, three or five year terms, variable rate products saw a sharp drop in pricing, down 0.4% to 4.0%. These products are now competitive with their fixed rate counterparts.
View full results for Q3 2017