Andy Virgo

Expertise pays dividends with limited company BTL

There’s no denying the incredible growth of the limited company BTL market in recent years. A study by Hamptons has shown that in 2020, around 41,700 limited companies were set up by landlords for their investing, a new record.

Not only is that a 23% increase from 2019, but it’s also more than double the number seen back in 2016.

This trend will only have continued during 2021, with so many landlords taking a proactive approach to expanding their portfolios, particularly during the stamp duty holiday.

Lenders have also responded to this increase by opening themselves up to more of these cases, with a sharp jump in the number of limited company BTL mortgage products on offer. 

For those lenders who specialise in working with professional landlords — rather than those who only have one or two investment properties — the trend has been particularly pronounced. At LendInvest, the majority of the BTL cases we deal with each month now come from landlords who are looking to purchase through a special purchase vehicle (SPV).

The appeal of limited company borrowing

It’s understandable why so many landlords are attracted to this form of borrowing. Holding property through some form of SPV means they can enjoy tax relief on mortgage interest, for example, something which is no longer possible for those holding property in their own name. They also benefit from a lower tax rate on their profits from these investment properties.

Holding a portfolio through a limited company makes succession planning far more straightforward too. Landlords can provide their children or grandchildren with a minority shareholding in the business. Restructuring what that shareholding looks like as the landlord gets into later life may prove a simpler option than gifting properties to loved ones, for example.

Understanding the market

While it’s welcome that more lenders have recognised the importance of this section of the BTL market, brokers are quick to point out that the experience they get from different finance providers can be particularly variable.

Some lenders have been late converts to this area, having been put off initially because of the legacy systems that they are lumbered with, which has made transacting cases with them far too arduous for the professional landlord who wants to move swiftly. By contrast, specialist lenders who have prioritised developing nimble systems have been easier for brokers and their clients to work with.

There can also be issues with pricing. Some lenders employ variable pricing, with higher interest rates charged for those borrowing through a limited company rather than as individuals, for example. We know that brokers and their clients value the more consistent approach we employ at LendInvest, with clients benefitting from identical rates — irrespective of how they are purchasing a property — and the more generous stress tests employed when borrowing through a limited company. It means that not only do they avoid being punished through a higher rate for buying as a business, but they can also potentially borrow to a higher LTV to boot. 

Some landlords who already had extensive portfolios as individual borrowers are now looking to move some or all of those properties into a business instead, which again can cause lenders issues if they aren’t completely in tune with this market. As experts in this field, we are familiar with the various routes landlords can utilise here, and have the flexibility to be entirely comfortable with whatever option they go for.

Brokers clearly need to think carefully about the lenders they place limited company BTL cases with, recognising the fact that the process is often smoother — and frankly delivers better value — if they stick with those who are particularly at ease with this form of finance.

Working with experts

There’s no question that brokers benefit from working closely with lenders who are experienced with limited company BTL and understand this market. But partnering with experts goes beyond selecting finance providers. The reality is that any landlord considering taking up this route needs to have proper tax advice around the consequences — both good and bad — and this advice needs to come from a regulated source.

As a result, it’s a really good move for intermediaries to form business partnerships with tax advisers to ensure they have an expert who can help their clients should they express an interest in limited company BTL. Not only is this best practice, it also demonstrates to clients that you cater to this market properly, improving the chances of them remaining on your books for life.

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