Lendinvest newsletter
The limited company BTL market has seen incredible growth in recent years. A study by Hamptons shows that in 2020, landlords set up around 41,700 limited companies for investing, marking a new record.
Not only is this a 23% increase from 2019, but it also doubles the number from 2016.
This trend will continue in 2021 as many landlords expand their portfolios, especially during the stamp duty holiday.
Lenders have responded by increasing the number of limited company BTL mortgage products available.
This increase is notable among lenders specialising in professional landlords rather than those with fewer properties.
At Lendinvest, most BTL cases each month now involve landlords purchasing through a special purchase vehicle (SPV).
To assist brokers, we allow them to submit, manage, and review cases on a live dashboard. This feature makes their work easier and ensures transparency on each deal.
The appeal of limited company borrowing
It’s clear why many landlords find this form of borrowing appealing. Using an SPV allows them to enjoy tax relief on mortgage interest. This benefit isn’t available when holding property in their own name. Additionally, they pay a lower tax rate on profits from these investments.
Holding a portfolio through a limited company simplifies succession planning. Landlords can give their children or grandchildren a minority shareholding. As landlords age, restructuring shareholdings may be easier than gifting properties.
Understanding the market
It’s welcome that more lenders recognise the importance of this section of the BTL market. However, brokers point out that experiences with different finance providers vary significantly.
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Some lenders were late to this area and were initially put off by legacy systems. These outdated systems make transactions too arduous for professional landlords who want to move swiftly. In contrast, specialist lenders with nimble systems are easier for brokers and clients to work with.
Pricing issues also arise. Some lenders use variable pricing, charging higher interest rates for limited company borrowers. They know that brokers and clients value the consistent approach employed at Lendinvest.
Clients benefit from identical rates regardless of how they purchase a property. They also appreciate the generous stress tests for limited company borrowing.
This means they avoid higher rates when buying as a business and can potentially borrow to a higher LTV.
Some landlords with extensive portfolios as individual borrowers are now moving properties into a business. This shift can cause issues for lenders not in tune with the market. As experts, they understand the various routes landlords can take and offer flexibility with their options.
Brokers must carefully consider the lenders for limited company BTL cases. They should recognise that the process is smoother and delivers better value with lenders comfortable with this form of finance.
Working with experts
There’s no question that brokers benefit from working closely with lenders experienced with limited company BTL and understand this market. However, partnering with experts goes beyond selecting finance providers. Any landlord considering this route needs proper tax advice around the good and bad consequences, and this advice needs to come from a regulated source.
As a result, it’s a really good move for intermediaries to form business partnerships with tax advisers to ensure they have an expert who can help their clients should they express an interest in limited company BTL. Not only is this best practice, but it also demonstrates to clients that you cater to this market properly, improving the chances of them remaining on your books for life.