Buy-to-let mortgage applications from limited companies more than double as landlords strive to beat tax hikes
- Limited companies make up 38% of Mortgages for Business applications
- 42% of Aldermore brokers have seen an increase in Ltd enquiries
Brokers have seen a surge in applications for buy-to-let loans from limited companies as landlords prepare for tax hikes starting in April.
The latest Buy-to-Let Index from specialist broker Mortgages for Business found that 38 per cent of its applications by December 2015 were from limited companies, up from 15 per cent in October - the month before the tax change was announced in the Autumn Statement.
The figures come as lender Aldermore reduced the rates and removed the fees on its limited company mortgages in anticipation of increased demand, but investors need to be aware of the risks and costs involved.
Landlords: Companies can still get the mortgage interest relief, although only businesses with more than 15 properties will be exempt from the stamp duty surcharge
Buy-to-let landlords have become the victims of the government's latest housing policy.
Chancellor George Osborne announced in his July Budget that mortgage interest relief would be capped at 20 per cent from 2017, rather than allowing individuals to claim relief at the marginal rate of tax.
As things currently stand, higher rate taxpayers, for example, are able to claim tax relief at 40 per cent.
This was followed by an announcement in the Autumn Statement of the introduction of an extra 3 per cent stamp duty surcharge for buy-to-let transactions from April 2016.
These changes have led to landlords fearing reduced yields or losses and trying to find ways of cutting the costs of buy-to-let by either purchasing properties before the stamp duty changes come in, or setting up companies.
The latter is because companies can still get mortgage interest relief and thus only pay tax on their rental profits.
Businesses with more than 15 properties will be exempt from the stamp duty surcharge, although a consultation on this is currently ongoing and due to close
The Mortgages for Business Index, covering the second half of 2015, showed new applications for limited company buy-to-let mortgages had dipped to 15 per cent of all applications in October.
It then increased to 38 per cent by December after the Chancellor announced the extra 3 per cent stamp duty surcharge on buy-to-let transactions.
The surge in applications highlights how the stamp duty changes have sharpened investors' minds, even though most non-professional landlords are more likely to benefit from forming a company to beat the mortgage interest gains - as they are unlikely to hold 15 properties.
Use our calculator below to work out how the stamp duty and mortgage interest relief changes could affect your portfolio.
To-let: The increase in limited company applications could also be being fuelled by lenders delivering more deals
Mortgage applications are also likely to have lagged the news in the July Budget on income tax changes.
The increase in limited company applications could also be being fuelled by lenders delivering more deals.The number of products available for buy-to-let companies has also increased from 99 in the first half of 2015, to 147 by the end of the year, according to the research.
David Whittaker, managing director at Mortgages for Business, said: 'The increase in limited company buy-to-let activity is to be expected since the proposed restrictions to buy-to-let mortgage interest relief for individuals paying the higher tax rate were announced by the Government in the Summer Budget.
'Operating portfolios through corporate structures is expected to be more tax efficient, particularly for higher tax rate-paying individuals, including individuals where the new tax regime will tip them into the higher tax bracket where previously they had remained below it.'
Aldermore also said it has experienced an increase in enquiries from companies for buy-to-let loans.
A poll of its brokers found 42 per cent said they were seeing an increase in enquiries from limited company landlords
Another 17 per cent said that they were seeing far more enquiries from limited company landlords.
The lender has cut the rates on its buy-to-let limited company products and removed the 1 per cent fee it previously charged.
Aldermore is now offering a two-year fixed rate for limited companies at 4.18 per cent for up to 75 per cent loan-to-value, or 4.68 per cent for 80 per cent LTV.
It is also offering a three-year fix at 4.78 per cent for 75 percent LTV or 5.08 per cent for 80 per cent LTV.
Borrowers could also get a five-year fix at 4.98 percent for a 75 per cent LTV or 5.28 per cent at 80 per cent LTV.
Charles Haresnape, group managing director of Aldermore, said: 'With recent changes towards buy to let, Aldermore has looked to support those investing through limited companies by reducing rates in order to bring them in line with our product range for consumers...
'With one in five properties in the UK owned by a private landlord, the private rental sector is a hugely important component of the housing market, and supporting buy-to-let landlords is crucial at a time when housing supply pressures have seen the number of number of households renting rise from 2.3 million in 2001 to 5.4 million in 2014.'
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