Increasing number of landlords opening companies to bypass buy-to-let tax changes

2nd February 2016

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A growing number of landlords are taking out mortgages via limited companies, suggesting they are looking to bypass higher buy-to-let costs as a result of changes to stamp duty and tax relief.

Applications made by limited companies accounted for 43% of all buy to let transactions in January, analysis from broker Mortgages for Business has revealed, up from 38% in December 2014.

David Whittaker, managing director of Mortgages for Business, says: “Landlords have woken up to the fact that transacting via a corporate vehicle is a feasible option and in many cases, the most prudent route going forward. I wouldn’t be surprised if the percentage continues to rise as landlords, especially the higher tax rate-paying ones, prepare for the forthcoming changes to relief on finance costs.”

The total number of buy to let mortgage applications (made by both individuals and limited companies) rose by 27% in January compared to December 2015.

Whittaker adds: “The increase is due to landlords trying to get as many purchases as they can completed before the stamp duty surcharge comes into effect on 1st April, after which I would expect transactions to return to more considered levels.”

Separate figures released today by Moneyfacts.co.uk, the price comparison service, show that buy-to-let mortgage rates are continuing to drop.

Charlotte Nelson, finance expert at the website, says: “Potential landlords are clearly conscious of the upcoming increase in Stamp Duty on second properties, which is due to come into play in April. It has sharpened the minds of investors, and as a result, many are looking to buy before the changes are implemented. This extra demand means that providers are competing heavily to attract landlords’ custom, leading to some of the lowest deals on record. For example, the average two-year fixed rate BTL mortgage has fallen by 0.85% in just two years while the number of products offered to borrowers has more than doubled.

“With high rental demand and low interest rates, there’s great potential for landlords. Pensioners who now have access to their pension pots and are fed up with the poor returns in the annuity and savings markets are particularly likely to find this sector appealing. However, anyone considering a BTL deal would be wise to seek out independent advice to make sure they get the most cost-effective deal for them.

“Rates may be falling now, but as the implementation date of the higher Stamp Duty fees approaches, it’s likely that some potential landlords will be deterred. It will therefore be interesting to see what changes occur to the overall BTL market after the charges are increased in April.”

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