Buy-to-let incorporation

The majority of the buy to let purchase transactions made through limited companies last year were related to additional property acquisitions, although the figures also include landlords selling property they already own personally into a corporate structure.

All transfers of properties from individuals to limited companies must be treated as a new purchase, and therefore do not qualify as a re-mortgage.

Throughout 2017, the interest in landlords using corporate structures from which to operate their portfolios has continued to grow rapidly and this is continuing into 2018.

This change in behaviour was triggered back in 2015 when incremental reductions to higher income tax rate relief on buy to let mortgage interest and other finance costs were announced by former Chancellor George Osborne. Since then, stricter affordability guidelines imposed by the Prudential Regulation Authority on personal buy to let borrowing has compounded the shift by landlords towards incorporation.

It pays to get the correct advice

Landlords are being urged to seek specialist mortgage advice as many will be considering re-mortgaging options due to a high number of fixed deals coming to maturity.

According to the latest figures, landlords borrowed £7.1 billion in March 2016, an 87% month-on-month increase and a 163% year-on-year rise. This accounted for 47,000 loans in total, an 90% increase on the previous month and 147% more than for March 2015.

The activity in March 2016 was ‘distorted’ due to brokers rushing to beat the 3% stamp levy on second homes that was effective from April, alongside the seasonal increase in activity before Easter.

Most of these deals were completed on two-year terms – now, landlords will be weighing up their re-mortgage options, rather than have their monthly payments revert to a higher standard rate.

Are you paying more than you need to?

Despite the recent interest rate rise, mortgage interest rates are still at historic lows. Yet many Landlords are still paying more than they need to.

Some Landlords are on a Standard Variable Rate (SVR) and paying up to 5.6%, compared with the best BTL mortgage deals at 3.5% or less, so are you missing out on substantial savings?

The situation could deteriorate if the Bank of England hikes the base rate further, a move that would make SVRs even more costly.

To illustrate the issue, the average Standard Variable Rate is around 5.6%, which is a lot higher than the best fixed mortgage rates.

Example monthly payment on £150,000 mortgage @ SVR 5.6% £700 Interest only.

Example monthly payment on £150,000 mortgage @ Deal 3.5% £437 Interest only.

Massive saving of: £263 per month x 12 months £3156 per year!

Still a very sound investment

UK buy-to-let landlords will still benefit from £16.7bn worth of tax relief after the government’s changes to the system are fully implemented by 2020.

The tax relief allows buy-to-let property landlords to offset against their rental income expenses like mortgage interest and other costs including property repairs, maintenance and renewals, legal costs, management and professional fees; and rates, insurance and ground rents. Despite tightening, buy-to-let tax breaks are still very valuable, highlighting that rental property remains a highly attractive investment vehicle in the long term.

People always seem to overlook the fact that property values are increasing all the time, this added to profits can give a very good return in the long term on money invested.

The Treasury said it expects the amount of taxes it collects from landlords to rise by £840m a year by 2020-21 after its cuts in tax reliefs on interest payments and property maintenance.

Government data showed landlords claimed £17.5bn in property expenses in the last year. Landlords claimed over £7bn in tax relief on mortgage interest and other financial costs, while £3.7bn was claimed for property repairs and maintenance.