A new survey reveals a staggering increase in landlords looking to buy within a Limited Company. What makes these structures so popular with property investors?
New research from leading buy to let lender Paragon Bank reveals that a record 74% of landlords intending to purchase a rental property in the next year will do so using a Limited Company.
This is a significant jump from the lender’s Q1 survey, where just 62% planned to use a Limited Company structure for a future purchase.
The report surveyed 983 landlords between the 1st and 21st of July and found that the number of landlords intending to purchase property in their individual name had fallen drastically to 17% from 41% in Q4 2021.
The popularity of Limited Company borrowing
The survey highlights the latest landlord investment activity. According to the results, both the average portfolio size for landlords with at least one property in a Limited Company and the average number of properties held in a Limited Company structure within these portfolios have increased. The report deduces that “portfolio landlords remain active purchasers of property”.
The average portfolio size for landlords in Q2 2023 was 16.9, up from 15.6 in Q1 and 13.1 in Q4 2021.
Furthermore, the average number of properties held by Limited Company landlords in Q2 2023 was 12.3. This is an increase from 11.7 in Q1 and 7.8 in Q4 2021. The commercial director of mortgages at Paragon Bank, Louisa Sedgwick, comments:
“Holding rental property within a Limited Company structure has been growing in popularity since the mortgage interest relief changes introduced by the government in 2017, but it has certainly accelerated in the past year.
“As a lender that specialises in portfolio landlords, we have always attracted a higher proportion of Limited Company lending, but that has certainly increased, particularly as interest rates, and subsequently mortgage pricing, have risen.”
Why invest in property using a Limited Company?
Limited Company lending has grown increasingly popular over the past few years, and as such, more and more lenders now offer Limited Company product ranges. Positively, this means interest rate pricing has become much more competitive.
One of the main draws to using this type of structure is the possible tax benefits. A Limited Company structure means you’ll pay corporation tax on rental income, which can be most cost-effective if you fall into the 40% higher-rate income tax band. Please seek professional tax advice before making any property investment decisions.
Similarly, lenders stress-test Limited Company mortgage applications more generously, typically at a ratio of 125% compared to 145% for individual applications. Consequently, you may be able to borrow more per pound of rent by investing through a Limited Company. In their report, Paragon comments that this reason alone has increased the number of property investors using this structure.
For more information about the benefits and considerations of investing via a Limited Company, please see our blog, From Personal to Limited Company Ownership.
You may also find our article A Guide to Maximum Age Limits for a Buy to Let Mortgage helpful if you are an older landlord considering a Limited Company.
How to invest using a Limited Company
Setting up your Limited Company is simple and will cost just £12. If you do this online, it will take you just a few minutes to arrange. Read our helpful guide to getting your new Limited Company set up here.
It’s vital that you speak to an expert broker when considering setting up a Limited Company for your property investments. Your broker will be able to answer any mortgage questions you might have to ensure you fully understand what Limited Company borrowing means, particularly if you want to transfer any personally owned properties into this type of structure.
To discuss your Limited Company property investment plans, get in touch with one of our expert brokers on 0345 345 6788 or submit an enquiry here.
Please seek professional tax advice before making any property investment decisions.
Search and compare mortgage rates
To review your mortgage options and see what types of rates you could access for your own home or for your property investments, head over to our mortgage calculator page. Or you can speak to one of our expert mortgage brokers by calling 0345 345 6788 or submit an enquiry here.
Further reading: Common Concerns for Limited Company Buy to Let Borrowers
