Since April 2013 when just 17 limited company mortgages were available, that number rose to 212 in April 2017 and hit another high this month.
The tax relief for mortgage interest changes announced by George Osborne in 2015 will finally start to hit the majority of tax returns in January 2019, but landlords have been seeking out limited company tax shelters for their loans since the changes were confirmed.
Previously, landlords could deduct mortgage interest and other allowable costs from their rental income, before calculating their tax liability. From 6 April 2020, tax relief for finance costs will be restricted to the basic rate of income tax, currently 20%.
Charlotte Nelson, finance expert at moneyfacts.co.uk, said: “Borrowers considering this type of mortgage should be aware that they could find themselves on a more expensive deal compared to the rest of the buy-to-let (BTL) market. For example, the average two-year fixed rate BTL mortgage, for those applying as a limited company, stands at 4.29% today. Whereas the average two-year fixed rate for the rest of the market is significantly less at 3.01%.
“With all the extra legwork that becoming a limited company entails, and how widely the costs can vary depending on circumstances, any borrowers considering it should consult a financial adviser and do the sums before committing to this option.”
Steve Olejnik, COO of Mortgages for Business said there will continue to be more availability of limited company loans because two or three more buy-to-let lenders will be entering the market this year and older lenders like Lendinvest are already ramping up their game.
“I would expect the BTL lending market to contract further from £35.8bn last year, to in the region of £32bn this year. However, the proportion of that which is specialist is doubling from last year and will do the same again next year.”
He added that any new lenders will bring market competition by adding some unique criteria and are also likely to impress on service, possibly through technology.