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Buy-to-Let Watch Episode 5 | Survival of The Biggest

Buy-to-Let Watch Episode 5

Buy-to-let watch episode 5

Liz Syms
Liz Syms, CEO and Founder of Connect Mortgages


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.

While a boon for many landlords, the stamp duty incentive has always been a temporary respite, with or without extensions. However, the real challenge lies in the unyielding changes to mortgage interest relief, which are set to be fully implemented from the 2020/21 tax year.

Landlords are swiftly approaching the point at which they will experience the full impact of the tax alterations introduced in 2015.

Kensington’s table illustrates a stark reality for higher-rate taxpayers, revealing that those earning £12,000 annually in rental income with £8,400 in mortgage interest will witness profits dwindle from £2,160 to a mere £480 per year. The repercussions of these changes have prompted many smaller landlords to exit the market. However, professional portfolio landlords, for the most part, have weathered the storm by adapting their strategies to align with the evolving tax landscape.

In response to the challenges, landlords are diversifying their property portfolios, exploring alternatives such as commercial and holiday lets—property types that fall outside the purview of the tax changes. While the holiday let market faced a setback during the lockdown, there is optimism for a resurgence, anticipating a boom as international travel restrictions ease.

Lenders are reopening their offerings as we approach the holiday season to tap into this potential resurgence. Noteworthy examples include West One, which launched a range of up to 70 per cent LTV using the PRA holiday-let exemption, employing a reduced rental calculation at 5 per cent. Ipswich has also introduced an 80 per cent holiday let offering, signalling a renewed interest in this segment.

Buy-to-let WatchAnother avenue gaining traction is Houses in Multiple Occupation (HMO) properties, driven by their potential for higher rental income to offset additional tax costs. Recognising this opportunity, lenders like LendInvest have expanded their criteria, allowing for HMO properties with up to 15 letting rooms. Masthaven is also open to considering HMO properties for first-time landlords, further expanding options in response to evolving market demands.

Buy-to-let watch episode 5 | Limited companies

Holding properties within a limited company has become a strategic choice in the real estate landscape. While not universally suitable for all landlords, more property investors are adopting this approach, particularly evident in the surge of new limited companies formed for this purpose.

Buy-to-let watch episode 5 | Trends and Statistics:  Research conducted by Hamptons in 2020 revealed a noteworthy trend, indicating a record-breaking 23% increase in establishing new limited companies for Buy-to-Let (BTL) properties. A total of 41,700 BTL incorporations were recorded, showcasing a significant rise from the previous year.

Buy-to-let watch episode 5 | Lender Considerations: In the realm of buy-to-let financing, over 30 lenders, excluding commercial providers, are open to considering applications from limited companies. While traditionally seen as a specialist domain, even some mainstream lenders are now exploring this avenue. Notably, a preference for Special Purpose Vehicles (SPVs) is observed, with less than half of the lenders extending this consideration to trading businesses.

Buy-to-let watch episode 5 | Market Expansion: The limited company market has attracted the attention of various building societies, often overlooked players in this arena. Institutions such as Bath, Mansfield, Monmouthshire, Newbury, Nottinghamshire, Saffron, and Buckinghamshire not only enter this niche but also provide unique criteria, seeking greater margins in these specialised offerings.

Buy-to-let watch episode 5 | Financial Advantages: One notable advantage of property acquisition through a limited company is the rental calculation. Higher-rate taxpayers purchasing a buy-to-let property in their personal name face stringent requirements, with most lenders stipulating rents 40-45% higher than the notional mortgage payment.

In contrast, limited companies offer a more competitive margin, typically around 25%. Coupled with tax benefits and increasing landlord awareness of rising costs, this factor contributes to the growing popularity of limited company buy-to-let structures.

Buy-to-let watch episode 5 | Continued Growth and Considerations:  The confluence of tax incentives, favourable rental calculations, and the evolving landscape of property investment suggests that the limited company buy-to-let trajectory will continue. Landlords are increasingly recognising the strategic advantages of this approach, and the market is witnessing a diversification of lenders willing to engage with this evolving 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

Connect for IntermediariesWe’ve come to the end of our “Buy-to-Let Watch Episode 5 | Survival of The Biggest.” Until next time, stay Connect!

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