Limited company product transfer options constrained but demand set to grow – analysis

Brokers said they have seen an uptick in the number of limited company deal enquiries and more product transfer opportunities coming up as many five-year fixed rate deals are maturing, increasing demand for product transfers.

According to Criteria Brain, there are 38 lenders who accept limited companies as a wrapper for buy-to-let investment properties and 36 lenders who do not.

Limited company structures have grown in popularity over the past five years due to changes brought in by the government in 2017, which means that landlords could no longer deduct their mortgage interest as a finance cost.

Landlords using limited company structures can still offset mortgage finance costs and other expenses, with no income tax on rental income and other benefits including succession planning as company shares can be allocated.

However, some brokers cited frustrations about the minimal number of lenders in the limited company space.

Matthew Wright, buy-to-let specialist at The Buy to Let Broker, said: “There are a selection of lenders in the limited company market who do not offer product transfers currently.

“This essentially removes a viable option out of the equation for our clients as a product transfer can often be the most appropriate option, whether that be due to overall cost when factoring in the aforementioned inflated legal costs, or due to a change in circumstances.”

He added that limited company conveyancing was often more expensive due to the “complexity” and lenders’ requirements, so it would usually be more cost-effective for the client to remain with the current lender.

“This point alone, will increase clients appetite to stick with their current lender rather than remortgage elsewhere,” Wright added.

Limited product choice

Paragon’s commercial manager Richard Saunders said that it could also be due to a “paucity of products” in the space so there is not a “huge range available to choose from”.

He added that Paragon doesn’t check the limited company set-up when it receives a product switch application and processes it in the same way, regardless of whether it is an individual or limited company.

However, he said that one challenge for lenders could be changes to directors or owners changing their shareholdings during the term.

He explained: “Once you’ve set up a limited company loan you have limited visibility on what happens within that company. You may have conditions or a policy says that the customer should let you know what’s happening with the company, but that doesn’t mean that they necessarily will. So there is a risk there.”

This could make it more challenging for some lenders to make a product transfer if were changes to the terms and conditions during the term.

Funding issues

Saunders noted that funding of specialist lenders who typically offer this kind of business could “complicate matters” if a lender had securitized a mortgage or used a line of funding that no longer existed it may not be possible to offer a product switch.

He said that individual landlord buy-to-let business was “much more established” so the funding lines would be “more likely to offer the back-end servicing of these mortgages”.

However, he said as limited companies was still a “relatively new” and more likely to be written by a “younger lender” it “won’t be as advanced, developed and mature as the individual market”.

Saunders added that the sector was “almost at critical mass” and had “almost become non-specialist”.

“Every man and his dog seems to be doing it, everyone within the specialist sector does do limited company and even some that are arguably non-specialists. Where the nuance comes in and where we retain our specialism is that we’re able to account for company structures, varying shareholdings and intercompany loans as well as combining with more complex property types,” he explained.

Expect more lenders and complex criteria

Brokers and lenders said that more lenders had started writing limited company business, pointing to the likes of The Mortgage Works, Precise Mortgages, CHL Mortgages and Zephyr Homeloans, mirroring their existing buy-to-let property criteria.

Sources said they expected that lenders would enter the space, with broker Wright saying that product choice would only continue to grow, especially around different properties and company types.

He added that by having more options for product transfers for limited companies would “only be beneficial for the client.

“Generally, product transfers can be arranged quicker, require less documentation and can often work out cheaper for the client when factoring in all the associated costs of a remortgage elsewhere.

“That being said, when looking at refinancing options for a client, we will not only look at product transfer options at their existing lender but all options available across the market to ensure they get the right deal going forward,” he said.