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Buy to let: Limited company purchases on the up but remortgages remain static – Fleet

by: Bob Young, CEO, Fleet Mortgages
  • 02/08/2016
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Buy to let: Limited company purchases on the up but remortgages remain static – Fleet
Much has been made of the government-enforced changes impacting on buy-to-let landlords now in the form of increased Stamp Duty, and those that are coming next year - the staggered cuts to mortgage interest tax relief which will begin from April 2017.

Given the implications of such measures, landlord borrowers were always going to react in terms of looking at ways they could mitigate the impact of such changes, especially when adding to portfolios. Thus we have seen an increase in the set-up of limited company vehicles and the demand for limited company products has increased.

Lenders, in a general sense, have reacted to this with the specialist operators like Fleet focusing on the benefits, and potential risks, that come with purchasing within a limited company structure. However, while we have seen more specialist lending interest, what we might describe as the more mainstream buy-to-let mortgage lenders have not (so far) pushed too hard at the limited company product door.

What is interesting about the perceived increase in limited company activity, however, is that it appears to be purely led by the purchase market. Of course, landlord borrowers, who own buy-to-lets individually, have the option to move those properties within a limited company structure but appear (at least judging by Fleet Mortgages’ data) not to be doing this in any greater numbers than they were prior to the initial announcement by the then Chancellor, George Osborne, last year.

Crunching our application data for each month since the start of 2015, we can see a definitive split between purchase and remortgage. For instance, prior to Osborne’s announcement our limited company purchase applications were running at between 25-30% of the total and after the decision was made, public applications jumped to approximately 40%. Indeed, the trend appears to have kicked on during July – at present, and for the first time ever, limited company applications exceed those for individual private investors by 61% to 39%.

It is, however, something of a different story when it comes to remortgage applications. Instead of the major boost we’ve seen in purchase limited company activity, remortgage limited company apps have stayed pretty constant throughout – ranging over the last six months between 10% and 23%. Again, there was a spike at the end of last year, up to 26%, but at no point in the last year and a half have we seen remortgage limited company applications get near to the number of private investor applications.

It perhaps doesn’t take a genius to work out why this might be the case, because clearly transferring an individual property to a limited company vehicle comes with some potentially sizeable costs. Because it is viewed as a technical purchase by the company, Stamp Duty would be payable and also perhaps Capital Gains Tax. And not forgetting that in most cases the mortgage costs would be more, plus remortgage fees, and so on. It would seem that landlords are currently more inclined to leave existing properties as is and purchase new additions to their portfolios through a limited company vehicle.

The big question is what will happen when the mortgage interest tax relief changes are actually introduced and landlords see the impact on their profits. I would guess that as we move through the next three years, the limited company remortgage applications will begin to follow the trend that we are already seeing in the purchase sector.

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