In much the same way the 2017 PRA and tax changes are manifesting as a busy year for remortgaging business, they set the course to fundamentally reshape the Buy-to-Let market in a way that is still being seen today.
The changes set out to professionalise the Buy-to-Let market, moving it away from retirees retaining properties to top up retirement income and towards the professional property investor.
This brought with it an emphasis on landlords forming limited companies to better serve and manage their portfolios.
When we first entered the Buy-to-Let market, it was supporting this professional landlord group where we put the majority of our focus.
Making limited company incorporations quick and painless was a major part of our simple approach to Buy-to-Let deals.
Five years on, where is the market now?
Read more: How lenders can make Buy-to-Let remortgaging simpler here.
The benefits of limited company incorporations
A Limited Company structure has become increasingly beneficial to larger portfolio landlords as BTL Tax Relief has been cut from 45% to 20%, hitting higher-rate taxpayers hard, and the limited company structure means they can pay less tax.
This, combined with no income tax payable on retained profits, means you can grow portfolios faster through having more money to re-invest.
It also makes property ownership simpler, as individuals can be added and removed from limited companies without the need for transfer of equity or sale of the property, which is the case for personal arrangements.
For some landlords, transferring into a limited company is unnecessary because of a relatively small portfolio meaning it doesn’t make a huge difference to their income, there’s also an expense to move all of the properties into the new structure which might put landlords off.
In a lot of cases however, it is a lack of knowledge about how the system works and could benefit them. Lenders can’t give out tax or legal advice, but it is best for them to get that advice when considering the change.
Buy-to-Let case study: four-way title split for newly converted flats here.
Making it simpler by how we approach it
The incorporation experience can be messy, and depending on the lender there can be hidden charges or higher interest fees that costs the borrower moments.
Our Buy-to-Let process, however, approaches it differently:
- We offer ILA Waivers, saving money
- We support unlimited portfolio sizes outside of us and have no exposure limits
- We don’t have different rates for limited company and individual Buy-to-Lets
- Our team understands the transaction and is set up to do incorporations.
From a criteria perspective, our approach is a flexible one, allowing multiple property types to be included, no max lending or exposure and the team conducts client interviews which means we can offer higher loan amounts.
The technology making it simpler
There are lots of small and big fixes a lender can use throughout the incorporation process to make it run smoother.
- Case duplication in the portal so brokers don’t need to enter details for every property in the portfolio
- Borrowers only have to submit 1 ID verification which we can use for all cases
- Rightmove integration means we can assess a portfolio in minutes
- We use Stripe for quick, online valuation payments that are done in minutes
Another tool we use that is a massive timesaver for brokers and their borrowers is Open Banking.
For limited companies, most mortgages don’t show up on an individual credit file so for us to see their mortgage history of a sample of the portfolio we would require 36 months of statements for multiple properties. Open Banking cuts this process short, showing in seconds what might take a broker and borrower weeks to prepare.
The right deal for landlords
Whether they want to continue as an individual, incorporate to a limited company or are already set up as a limited company, Buy-to-Let deals need to continue getting simpler for brokers and their clients.
The benefits of incorporation might not be worth it for everyone, but when a landlord decides its right for them, making that adoption smoother so they can have confidence in their choice is what every lender should be focussing on.
Get instant quotes for our Buy-to-Let range on our Buy-to-Let page here.
Credits: Sophie Mitchell-Charman, Sales Director