In Q4 2017, nearly three-quarters of buy to let mortgage transactions made by landlords operating via limited companies were used to buy property rather than for refinance purposes.
These findings, published today in the Mortgages for Business Limited Company Buy to Let Index, contradict both the borrowing choices of individual landlords and the wider residential mortgage market where refinancing property has long been the preferred reason for borrowing.
Transaction data in the index include both new applications and completions facilitated by Mortgages for Business.
Most of the BTL purchase transactions made through limited companies were related to additional property acquisitions, although the figures also include landlords selling property they already own personally into a corporate structure. (All transfers of properties from individuals to limited companies must be treated as a new purchase, and as such will not qualify as a remortgage).
Throughout 2017, the propensity for landlords to use corporate structures from which to operate their portfolios has continued to grow rapidly. This sea-change in behaviour was triggered back in July 2015 when incremental reductions to higher income tax rate relief on buy to let mortgage interest and other finance costs were announced by former Chancellor George Osborne in his Summer Budget.
Since then, stricter affordability guidelines imposed by the Prudential Regulation Authority on personal buy to let borrowing has compounded the shift by landlords towards incorporation.
Commenting on the index, Steve Olejnik, COO at Mortgages for Business said:
“To help landlords determine whether using limited companies is the right strategy for them, we’ve been encouraging our clients to take professional advice. We will also continue to produce guides and webinars which explain how the tax and regulatory changes might impact their investments. The landscape of buy to let is changing and it’s important that landlords are equipped to traverse the terrain.”
Remortgaging accounted for fewer buy to let transactions than purchases because of the relatively short period of time in which limited companies have been growing in popularity. This number is expected to grow as Early Repayment Charge periods expire, allowing landlords to refinance without penalty.
The index also reveals that the proportion of buy to let mortgages available to limited companies grew in Q4 from 21% to just under a quarter of all products. It should be noted that the vast majority of these products are also available to landlords borrowing personally.
Average rates for these mortgages rose slightly in the period due to the introduction of additional five year fixed rates which are typically higher than their shorter-term counterparts.