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12:08 PM, 24th October 2022, About 2 years ago
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The number of companies set up to hold buy-to-let property has doubled since 2017 and now stands at more than 300,000 – driven by landlords incorporating on the back of rising interest rates.
The findings come from Hamptons who say this has been primarily driven by existing landlords moving properties from personal to company names to reap the tax benefits.
This shift has been underpinned by interest rates rising to 6% which means the average higher rate taxpaying landlord with property in their personal name may face paying a £1,716 annual tax bill, despite making a loss of £2,479.
Nationally, the average cost of a new let rose 6.9% over the last 12 months, down from 7.4% in August, with London leading the way.
In Scotland, where a rent cap was introduced for renewals, there were 60% fewer homes available to rent than in September 2019 – the largest fall in the country.
The head of research at Hamptons, Aneisha Beveridge, said: “The record number of landlords now holding properties in a company means it’s rapidly becoming mainstream among investors.
“The number of new incorporations is likely to remain relatively high over the next 12 months on the back of the stamp duty cut which saves the average investor just under £2k when moving a buy-to-let from personal to company names.
“But the big driver is the financial advantage of being able to offset mortgage payments as interest rates rise.
“This means that limited company investors stand a better chance of turning a profit in a world where mortgaged landlords are coming under increasing pressure.”
She added: “While rapidly rising rents have softened the impact of higher interest rates for landlords, rental growth only offsets around a fifth of their increase in mortgage costs.
“This means that a landlord who bought an average home two years ago with a typical 25% deposit would need to increase their equity from 25% to 55% if they re-mortgaged today in order to maintain the same monthly returns compared to when they first bought.
“For the average investor, this means stumping up an extra £67,000 in cash.”
Hamptons says that it is likely that more buy-to-let companies will be set up in 2022 than in any previous year, despite there being fewer buy-to-let homes bought this year in comparison to last year.
This rise has been exacerbated by rising rates as existing landlords move properties they already own from personal to company names in a bid to offset rising mortgage interest against their tax bill and increase their profits.
The firm says that around 40% of all new buy-to-let purchases are now made via a company structure, a record figure and one which is up from around 10% in 2016 before the Section 24 tax changes were tapered in.
This means that although the share of homes bought by an investor has remained broadly stable over the last couple of years, an increasing proportion of these purchases go into a company.
The average company with outstanding mortgages now holds 3.3 mortgaged properties.
Over the last 12 months to September 2022, a total of 50,445 new companies were set up to hold buy-to-let property, the second highest figure in any 12-month period.
However, the total number of active buy-to-let companies increased more slowly than this – because 8,902 companies were dissolved, predominantly due to the sale of all the properties being held within the company, a figure which is up 25% on the previous 12 months.
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