Paragon Bank

Buying BTL properties through limited companies increases in popularity among landlords

The proportion of landlords who plan to purchase their next BTL property through a limited company has risen to 62% in Q2 2022 — the highest level seen in the last three years — revealed recent Paragon Bank data.

This is a 12 percentage point increase compared to Q1 results, when 50% said they were considering expanding their BTL portfolio through limited companies.

“Since midway through the last decade, tax burdens on BTL investment have increased significantly — along with the recent rise in overheads brought about by increasing energy and maintenance costs, running a letting business has undoubtably become more costly, so it’s no surprise to see more landlords look for ways to reduce their costs, with incorporation being one option for some,” said Richard Rowntree, mortgages managing director at Paragon Bank (pictured above).

“With interest rates rising as they have this year, ICR limits have become harder to achieve.

“Incorporated landlords are not subject to the same restrictions on interest relief as those borrowing in their personal names, so operating through a limited company can help here.”

The survey of over 700 landlords, undertaken by BVA BDRC on behalf of the bank, also highlighted how the propensity to incorporate tends to increase with portfolio size.

Just under half (47%) of landlords who own between one and five properties expect their next purchase to be through a limited company, rising to over three quarters (78%) among those with portfolios consisting of six or more BTL homes.

According to Richard, there are two key reasons why professional landlords are more inclined to purchase property through a limited company.

“Firstly, building up a larger portfolio often takes time, and this brings with it experience and knowledge; this means that professional landlords are more likely to be aware of the benefits that incorporation can offer,” he explained.

“Secondly, those with larger portfolios often have multiple properties to incorporate, and so can apply some economies of scale.”

When asked whether Paragon Bank predicts a further increase in the proportion of landlords buying properties through limited companies, Richard said it was hard to predict.

“While we do feel that we will see a further professionalisation of the sector and professional landlords are often more likely to operate through a limited company, the advantages and disadvantages differ based on a lender’s personal situation at the time and are often linked to current tax requirements, which may well change in light of the recent changes to government,” he explained.

Overall, only 14% of landlords surveyed said they plan to purchase BTL properties in the next 12 months.

Of those who intend to expand their portfolios, 66% said that they plan to finance their next property investment through a BTL mortgage — four percentage points higher than the previous quarter results.

Meanwhile, 28% plan to fund purchases by releasing equity from existing properties. 

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