London and the South East saw the largest increases as the number of new incorporations in those regions rose 45 per cent. The buy-to-let (BTL) boom did not, however, continue in the North East where year-on-year the number of new BTL companies fell six per cent.
The overall increase is almost double the number set up in 2017, and 61 per cent of the current 269,300 companies were created since April 2017. That’s the year that investors were told they could no longer deduct mortgage interest as an expense on their tax returns if the properties were under their personal names so many began shifting their BTL units into a company to be taxed on profit rather than turnover.
Aneisha Beveridge, head of research at Hamptons, said: “The way buy-to-let investors hold property has changed, with the impact of the tax changes made five years ago still shaping landlord buying behaviour today.”
However, an analysis by Hamptons showed, the rate of growth for new incorporations slowed to 14 per cent last year compared to 30 per cent in 2020.
Despite record numbers of rental homes being held in companies, Beveridge said that the rise in buy-to-let businesses “has come from smaller landlords – rather than larger institutions – who made up most buy-to-let company owners pre-2016. Today, only 20 per cent of buy-to-let businesses hold more than three mortgaged properties, a similar profile to landlords who hold homes in their personal name.”
Whether the records would continue was uncertain, however.
“The number of new buy-to-let incorporations in 2021 is probably close to its peak, Beveridge said, “with fewer likely to be set up in 2022. This is partly a product of last years’ stamp duty holiday which served to slow the fall in new investor numbers. Additionally, many investors who have wanted to make tax savings by transferring properties from a personal to a company name have had five years to do so.”
Over the last year, companies took out 50 per cent of all new BTL mortgages and now make up nearly 30 per cent of outstanding BTL loans. Based on that data, Hamptons said it estimated that around half of all new landlord purchases in 2021 used a company to hold their buy to let.
Not every company is fresh to the scene, of course. Three per cent of BTL companies have been running for more than 50 years, Hamptons said, while 440 have operated for more than a century.
The bulk of new BTL companies set up in 2021 were in London and the South East, where typical rents tend to be highest.
“With average rents in all four southern regions now surpassing £1,000 per month,” Beveridge said, “the North-South divide in the rental market has never been wider. The recent recovery in London rents, coupled with strong ongoing growth across Southern England has seen the gap in rents between Northern and Southern England grow from 35 per cent or £200 per month to 50 per cent or £350 per month over the last decade.”
