We relished our latest instalment, “Buy-to-Let Watch Episode 4, Exciting Improvements in Buy-to-Let”, which inspired us to steer the series in a new direction. Buy-to-Let Watch Episode 5 | Survival of The Biggest.
The stamp duty incentive has been a temporary relief for landlords, but its benefits are always short-lived. Moreover, the greater challenge stems from changes to mortgage interest relief, fully implemented in the 2020/21 tax year.
The Financial Impact on Landlords
Landlords are now facing the full impact of tax alterations introduced in 2015. This includes higher tax burdens for many, particularly for higher-rate taxpayers. Kensington’s data highlights this starkly: landlords earning £12,000 annually in rental income with £8,400 in mortgage interest see profits fall from £2,160 to just £480. Consequently, smaller landlords are leaving the market, unable to manage these changes.
Resilience Through Portfolio Diversification
However, professional landlords with larger portfolios have effectively adapted their strategies. By reassessing their approaches, they remain resilient amid the evolving tax environment. One method includes diversifying portfolios into areas less affected by these changes.
For example, many landlords now consider commercial or holiday lets. These property types are not subject to the stricter tax regulations on buy-to-let properties. Although the holiday lockdown restrictions impacted the market, optimism has returned. A significant rebound is expected as travel restrictions ease.
Lender Support for Emerging Opportunities
Lenders are also responding to this renewed interest. West One launched a holiday let product with up to 70 per cent LTV, using a reduced rental calculation of 5 per cent. Ipswich has gone further, offering an 80 per cent LTV product for holiday lets. These developments indicate growing opportunities in this sector.
The Rise of Houses in Multiple Occupation
Another strategy that is gaining momentum involves investing in houses in multiple occupations (HMOs). These properties often generate higher rental income, offsetting increased tax liabilities. Lenders are expanding their criteria to support this demand. For example, LendInvest allows HMOs with up to 15 letting rooms. Additionally, Masthaven now considers HMO lending for first-time landlords.
Thriving in a Changing Market
Landlords must adapt to these challenges by exploring new avenues and leveraging available opportunities. The UK mortgage market is evolving, but strategic shifts can help landlords thrive.
Buy-to-let watch episode 5 | Limited companies
Holding properties in a limited company is increasingly popular in the UK property market. Although not suitable for every landlord, many investors find this approach advantageous. This trend is particularly evident in the significant rise of limited companies formed specifically for property investment.
Trends and Statistics in Buy-to-Let Investments
Hamptons research in 2020 highlighted a dramatic increase in limited companies for buy-to-let (BTL) investments. The data revealed a record-breaking 23% rise, with 41,700 new incorporations for BTL properties recorded. This marked a notable jump compared to the previous year and reflects a broader shift in investor strategies.
Lender Preferences for Limited Companies
More than 30 lenders, excluding commercial providers, now consider applications from limited companies. Previously seen as a specialist niche, even mainstream lenders are beginning to adapt. However, Special Purpose Vehicles (SPVs) remain the preferred structure. Fewer than half of the lenders accept applications from trading businesses, emphasising the importance of choosing the right company setup.
Building Societies Enter the Market
Several building societies are now active in this sector, offering tailored solutions. Institutions like Bath, Newbury, Monmouthshire, and Nottinghamshire building societies provide unique criteria and competitive terms. These smaller lenders often focus on niche markets, aiming for higher margins through bespoke offerings.
Financial Benefits of Limited Companies
Acquiring property through a limited company provides distinct financial advantages. For higher-rate taxpayers, personal ownership requires rents to be 40-45% higher than mortgage payments. In contrast, limited companies enjoy more lenient calculations, often around 25%. Additionally, landlords benefit from tax efficiencies, making this structure increasingly appealing.
Sustained Growth in Limited Company Buy-to-Let
The combination of tax incentives, competitive rental calculations, and evolving lender options suggests continued growth in this sector. Landlords increasingly value the strategic benefits of limited companies, prompting further diversification within the market. As awareness grows, more lenders will likely engage with this dynamic segment.
Table of Noteworthy Limited Company Offerings:
| Lender | Rate | Type | Lender fee | LTV |
| Precise | 2.79 per cent | 2-year fix | 1.5 per cent | 75 per cent |
| Habito | 3.04 per cent | 2-year fix | £1,995 | 65 per cent |
| Buckinghamshire | 2.99 per cent | 3-year discount | £1,195 | 75 per cent |
| LendInvest | 3.29 per cent | 5-year fix | 1.75 per cent | 65 per cent |
| Landbay | 3.34 per cent | 5-year fix | 1.5 per cent | 60 per cent |
| Vida | 3.34 per cent | 5-year fix | £3,750 | 75 per c |
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