Despite a sharp fall in the number of homes bought by landlords in 2023, the number of limited companies set up to hold buy-to-let properties continues to soar.
Last year a record 50,004 limited buy to let companies were set up across the UK surpassing 2022’s previous record of 48,540 by 3%.
The data comes from lettings agency Hamptons, which describes 2023 as a year of two halves.
In the first half of the year following the aftermath of the mini-budget, the number of new buy to let incorporations ran at around two per cent below the same period in 2022. However, as more investors began to face higher mortgage rates, the number of limited companies set up to hold buy to lets picked up in the second half of 2023 to run at nine per cent above 2022 levels.
Scotland recorded the largest pick-up, with an 8.4% year-on-year uplift in the number of new companies set up: this primarily reflects the bigger difference here in tax rates paid by individual landlords and limited companies.
A record 58% of limited company buy-to-lets in the North East were held in a company that was set up outside the region, the highest proportion in any region. This reflects how landlords from across the UK are targeting higher yielding buy to lets, particularly in the North of England.
The rising number of incorporations means that at the start of 2024 there were 345,426 active limited companies designed to hold BTL property in the UK, up 11.6% from 309,643 at the beginning of 2023. Some 68% of current companies had been set up between 2017 and 2023 when tax changes were phased in.
Overall, these companies own a total of 615,077 properties across England & Wales, an 82% increase from the end of 2016 when landlords who were higher rate taxpayers started to see the share of mortgage interest they could offset from their tax bill for homes in personal names reduce. However, companies set up after 2016 still only own 38 per cent of all buy to lets held in a limited company.
Of the 615,077 limited company buy-to-let properties, 458,838 - roughly 75% - have a mortgage charge against them.
The number of outstanding limited company mortgages has risen 10% over the last 12 months, despite the total number of buy to let mortgages falling three per cent over the same period. This also means that limited company landlords are more likely to have a mortgage than investors who own buy-to-let property in their personal name.
Most of the growth in buy-to-let incorporations over the last year has come from smaller landlords. Over the last 12 months, there was a 21.9% increase in the number of homes held in companies with a single property. This compares to a 3.8% increase in the number held by companies owning 20+ homes.
Companies owning 20+ homes were the only ones to see the number of mortgage charges increase faster than the number of homes, suggesting that these investors are leveraging up rather than reducing the debt on their portfolio.
This means that limited companies set up to hold BTLs now account for 24% of all properties held in any sort of limited company structure, up from 16% in 2016. Between 2016 and the end of 2023, the total number of properties owned by all limited companies, not just those set up to hold buy to let property, rose by 21%.
Aneisha Beveridge, head of research at Hamptons, says “despite last year's slowing sales market, there was no let-up in landlords rushing to incorporate. Rather, the record number of companies set up to hold buy to let homes suggests a long-term commitment from landlords - particularly given the upfront costs associated with incorporating. The growth has been driven mostly by existing landlords moving properties into a corporate structure to shelter themselves from higher interest rates. Meanwhile the number of new landlords setting up shop has remained relatively muted.
For as long as landlords continue rolling off cheap fixed-term mortgages onto rates which are twice or triple what they were paying, the number of homes being put into a corporate structure will remain high. The number of buy to let incorporations each year is likely to continue running in the region of 40,000-50,000 for the foreseeable future. Longer term, the current tax regime could push half of all rental homes into a limited company, significantly reducing the existence of landlords who own buy to lets in their personal name.”
Limited company buy to let mortgages on the rise – Paragon
Nearly half of mortgage brokers in the UK expect to see more buy to let business from landlords operating through limited companies in the next year, a survey reveals.
According to Paragon Bank, more than 300 brokers were questioned and 49% of them are predicting an increase in buy to let mortgages for portfolio landlords using limited company structures. Portfolio landlords are those who own four or more properties. Another 45% of brokers predict a rise in BTL mortgages for non-portfolio landlords who also opt for limited company structures and who own fewer than four properties.
Paragon’s commercial director of mortgages, Louisa Sedgwick, said “I think intermediaries are right to expect to see more limited company business this year. It is a structure that has become increasingly popular with landlords in recent years as they have responded to Government changes to the tax treatment of buy to let property ownership. Owning properties through a limited company can enable landlords to offset finance costs, such as mortgage interest, against rental income. It’s wise for borrowers to seek professional advice because incorporation may not be the best route for all landlords and the benefits can vary based on individual circumstances.”
Currently, 29% of mortgage cases are for portfolio landlords with limited companies, while 15% are for non-portfolio landlords with limited companies.
The survey also revealed that only 11% of brokers expect to do more business with landlords who borrow in their personal names, regardless of their portfolio size. The survey results are consistent with those of a separate study by Paragon, which showed that 64% of landlords who plan to invest in property in the next 12 months will do so through a limited company, compared to 15% who will finance in personal name.
This limited company purchase intent proportion is averaged across the range of portfolio sizes and increases to 82% amongst landlords with six or more properties.
Capital Gains Tax burden forces landlords to defer sales plans
A new study by the National Residential Landlords Association suggests some landlords wanting to quit the private rental sector have deferred their plans because of the burden of Capital Gains Tax.
The association’s regular quarterly survey discovered 45 of respondents saying CGT has been a factor in deciding to hold onto property longer than anticipated when first becoming a landlord.
In another part of the survey, more than half of landlords polled who had property with EPC D or below said they will either sell some properties or exit the market altogether should the minimum C plans come back to the table. There is also substantial support for the idea of financial assistance for landlords making energy efficiency improvements, with 85% saying this is vital in driving up minimum standards.
More generally, the survey suggests landlord confidence is increasing after several quarters of record lows.
The survey relates to sentiment in the third quarter of 2023 and this was 7.9% more optimistic than in the previous three months.
The NRLA says the reasons behind this include the government’s decision to abandon plans for a minimum energy efficiency rating of C in rented homes, a fall in inflation and Michael Gove’s announcement that Section 21 will be scrapped only after court reform has been completed.