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Limited company BTL landlords could lose £1,000 a year

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Higher mortgage rates on limited company buy-to-let mortgages will outweigh any tax advantages for investors, according to research.

Following the roll out of the new landlord tax relief system from April this year many landlords opted to invest via a limited company or special purpose vehicle (SPV) which were exempt from the changes. In April figures from Countrywide revealed one in five homes in the UK were now let out through limited companies.

But Private Finance’s analysis claims a limited company borrower can expect to pay 3.41% for a two-year fixed 75% LTV mortgage deal, compared to 1.92% for personal borrowers, cutting their income by £1,000 each year.

Shaun Church, director of Private Finance, said: “The option to invest through a limited company has come under the spotlight recently as landlords look for ways to offset recent tax changes. But landlords shouldn’t rush into this assuming it’s a safe bet for saving money. Limited company mortgage products are available through a handful of smaller lenders, resulting in higher rates compared to personal borrowing. Investors need to drive down mortgage costs as much as possible to prevent this from eating into their profits.

“Larger landlords might find the tax benefits associated with limited company ownership outweigh the higher cost of mortgage borrowing. Each investor is different and there’s no one-size-fits-all solution. Landlords should ensure they seek professional advice on how best to maximise their profits: an independent mortgage broker can help explain the range of options available to limited company and personal buy-to-let borrowers.”

A spokesperson for data site Moneyfacts said the figures quoted by the Private Finance covered best buys. The average two-year fixed limited company buy-to-let at 75% LTV for the entire market is 3.94% while the average two-year fixed excluding limited company only options buy-to-let at 75% LTV stands at 3.03%.

Jane Simpson, managing director at buy to let specialist TBMC said she expected competition to increase within the limited company space.

“It is true that the cost of limited company buy-to-let mortgage products is typically higher than for standard individual applicants, although it really does depend on the circumstances,” she added.

“Certainly, limited company products are not the best financial option for everyone and we strongly encourage any buy-to-let clients, especially inexperienced landlords, to seek qualified tax advice before using a corporate structure for their buy-to-let investment.

“That being said, SPVs can work very well for landlords who have several properties in their portfolio, and following the recent changes in the buy-to-let sector and the implementation of the second phase of the PRA regulations at the end of September, we may see further competition in the limited company buy-to-let mortgage space.”

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  • Barry

    Very poor article, giving very poor advice. The author has not researched this and shows a complete lack of understanding of the new tax regime that is coming in.

    Yes the interest rate will have an impact but without taking all the other income, costs and revenues into account you cannot possibly come up with a £1,000 income reduction. The article doesn’t even say if this figure is pre-tax or after-tax.

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