BTL mortgage brokers predict strong demand for limited company lending

Buy to let mortgage brokers are predicting a big rise in limited company lending for BTL landlords in the coming year, a survey reveals.

According to Paragon Bank, 49% of brokers expect to handle a larger volume of buy-to-let mortgages for portfolio landlords who operate through limited companies.

In addition, 38% of intermediaries foresee an uptick in non-portfolio limited company business within the next 12 months.

However, personal name portfolio and non-portfolio buy-to-let lending are not expected to see much growth, with only 14% and 6% of brokers predicting increases in these sectors, respectively.

‘Limited company structures can be more tax efficient’

Paragon’s director of mortgages, Louisa Sedgwick, said: “Owning properties through limited company structures can be more tax efficient because of the ability for investors to offset finance costs, such as mortgage interest, against rental income.

“In addition, those applying for mortgages through limited companies are often stressed at 125%, compared to the 145% that landlords applying as individuals are subject to.”

She added: “While limited company structures may not be the best option for every landlord and we’d always recommend seeking professional, independent advice, these advantages are becoming even more evident in the current market where the unsettled economy has made it necessary for lenders to tighten up stress testing.

“This is why I think the brokers we spoke to have got it spot on and we’ll continue to see a shift towards more limited company lending.”

Limited company mortgages are gaining popularity

A recent study conducted for Paragon’s Mortgage Intermediary Insight Report (MIIR) indicates that limited company mortgages are gaining popularity among portfolio landlords.

Currently, such mortgages account for 24% of cases, but brokers expect this number to increase due to the favourable tax treatment for incorporated businesses.

In a separate survey of landlords conducted in the first quarter of this year, 62% of those planning to expand their portfolios intend to purchase properties within a limited company structure.

Limited companies for property investors

This is a significant jump from 43% in Q3 2021, highlighting the growing appeal of limited companies for property investors.

Also, Paragon’s research reveals that 43% of landlords with portfolios owned within a limited company structure earn a profitable full-time income.

In contrast, only 26% of investors holding properties in their personal names achieve the same level of profitability.