Incorporation moving swiftly, could it benefit you?

According to the buy-to-let Index, the number of buy-to-let lenders lending to limited companies has risen by 47% over the past year. 22 buy-to-let lenders now lend to limited companies – up from 15 in Q4 2017 and the total number of mortgage products available to them has more than doubled since Q4 2017 – from 263 to 628. The result has been that 44% of buy-to-let transactions are now made by limited companies – up from 42% in Q2 2018.

This change in market behaviour is not surprising. We are only just over a year or so from last September’s changes issued by the Prudential Regulation Authority, the 3% stamp duty surcharge on second homes in April 2016 and a withdrawal of tax relief by 2020.

We’ve already seen that the more stringent rules on buy-to-let lending has meant the near two million ‘hobby’ landlords who own 15% of the housing market have found it increasingly difficult to raise finance from traditional lenders. Many have also embraced the business model of Houses of Multiple Occupancy in an effort to improve yields.

Limited company structures do not come without their challenges. They not only affect individual borrowers’ tax positions but also demand skills in lenders, such as understanding how company structures and law affect lending positions.

Completely new companies have no trading history or track record of success upon which lenders can base their decisions. Without any credit history it’s hard to establish the chances of the loan being repaid. In these circumstances, the lenders that do consider such applications often ask for personal guarantees from the directors, so that should the mortgage not be repaid the directors become personally responsible.

There may be additional administrative costs related to operating as a limited company, and in some instances it can be more complicated to transfer property and assets. When a property is sold via a limited company, it is subject to corporation tax, rather than capital gains tax. While the rate of corporation tax is lower than the rate of capital gains tax, an individual benefit’s from the capital gains tax allowance, which does not apply to a company.

If you are looking for a new or re-mortgage please do make contact and one of our qualified advisers will be happy to assist.