The rise of Limited Company buy to let Mortgages

The rise of limited company buy-to-let

Challenging market conditions, increasing financial pressures and regulatory requirements are driving an increasing number of landlords to choose a limited company structure for their buy-to-let business. This shift towards professionalism is being recognised by the industry, with lenders introducing specialist ranges of limited company landlord mortgages designed specifically for investors who manage a full-time rental portfolio.

At a time when demand for rental properties is outstripping supply, those landlords in a position to expand their portfolio, change their business structure or enter the market at a professional level may find they have a competitive edge.

A trend towards greater professionalism

Over the last ten years, taxation and regulatory changes in the private rented sector have left amateur, accidental and smaller portfolio landlords struggling to compete and, as financial pressures grow, many are selling up. This has coincided with a trend towards greater professionalism across the market which looks set to continue. According to recent research by Paragon Bank*, 49% of mortgage brokers expect the volume of buy-to-let portfolio limited company lending to increase in the next 12 months. Indeed, at Vincent Burch Mortgage Services we have seen a noticeable increase in the number of mortgage applications we have processed from limited company buy-to-let businesses.

This shift is highlighted by a separate BVA BDRC survey of landlords in Q1 2023 which revealed that 62% of those landlords intending to expand their portfolios, plan to purchase properties within a limited company structure, up from 43% in Q3 2021.

What you need to consider when being a limited company landlord

There are several aspects to consider when becoming a limited company landlord and we strongly advise taking professional advice before making a final decision on the best course of action for your circumstances.

• Tax - one of the main benefits of operating within a limited company structure is the favourable tax treatment, where investors can offset certain costs, such as mortgage interest, against rental income. In addition, limited companies do not pay income tax on rental income, instead they are subject to Corporation Tax on rental profits, up to 25%, depending on the company’s turnover (from April 2023). This is particularly beneficial for higher-income taxpayers or those with larger portfolios.
• Buy-to-let mortgage – as more landlords are choosing to buy, own and let their properties through a limited company structure, an increasing number of lenders are re-launching their limited company mortgage offers with service, flexibility and affordability in mind. New products from players such as Leeds Building Society and Mansfield Building Society are designed to offer more choice to landlords and help to mitigate the current financial pressures they face. Finding the right buy to let limited company mortgage can be a challenge but our team at Vincent Burch Mortgage Services have access to specialist lenders across the market and can take advantage of the latest products and competitive rates available.
• Costs – as well as mortgage finance, other costs to consider include property conversion or renovation, improving energy efficiency and ongoing maintenance. Thought should be given to the cost in terms of the time involved in managing individual tenants’ needs and ensuring the property is consistently maintained to a high standard throughout.
• Regulation – staying ahead of regulations such as the much talked about new energy performance certificate (EPC) minimum rating of ‘C and above,’ is vital. We recommend identifying any energy efficiency property improvements now to ensure your buy-to-let property portfolio is compliant when the new rules come into effect (currently 2028).
• Administration – a limited company set-up will incur additional costs and associated paperwork such as preparing full-year accounts, filing returns at Companies House and legal fees.
• Succession planning – a limited company structure may be beneficial if you plan to transfer ownership of the property to a family member in the future. As the property isn’t changing ownership (it’s still owned by the company) it could protect the transaction from Stamp Duty, Inheritance Tax and Capital Gains Tax. Advice should be taken from a tax adviser or accountant who can ensure your business is tax-efficient and cost-effective now and in the future.

Choose the right limited company buy to let mortgage

 When it comes to giving mortgage advice, our team at Vincent Burch Mortgage Services has over 200 years of combined knowledge and experience to call upon. Deciding on the best limited company buy-to-let mortgage for your needs can be a daunting prospect– why not take advantage of our friendly advice and expertise to ensure you make the right choice?

As an independent broker, we have access to the whole of the market, including specialist lenders often not available on the high street. We’ll work closely with you to search the market and find a  limited company mortgage that best fits your needs.

So, if you’re a limited company landlord, or thinking of becoming one and would like impartial advice on any aspect of mortgage finance, please call today on 01603 851534 or email [email protected].

*Research undertaken by BVA BDRC for Paragon’s Mortgage Intermediary Insight Report