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10:23 AM, 15th January 2024, About 3 months ago
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The property market saw a decline in the number of homes purchased by landlords in 2023, but this did not stop the growth of buy to let companies with a record 50,004 new limited companies being formed, research reveals.
According to Hamptons, the number of firms being formed to hold buy to let properties in the UK last year saw a 3% increase from the previous record of 48,540 in 2022.
The trend was driven by tax changes that made it more attractive for landlords to incorporate their properties, as well as higher mortgage rates that affected individual investors.
The number of BTL companies rose by 9% in the second half of 2023, compared to the same period in 2022, after a slight dip in the first half following the mini-Budget.
Hampton’s head of research, Aneisha Beveridge, said: “Despite last year’s slowing sales market, there was no let-up in landlords rushing to incorporate.
“Rather, the record number of companies set up to hold buy to let homes suggests a long-term commitment from landlords – particularly given the upfront costs associated with incorporating.
“The growth has been driven mostly by existing landlords moving properties into a corporate structure to shelter themselves from higher interest rates.”
She added: “Meanwhile the number of new landlords setting up shop has remained relatively muted.
“For as long as landlords continue rolling off cheap fixed-term mortgages onto rates which are twice or triple what they were paying, the number of homes being put into a corporate structure will remain high.
“The number of buy to let incorporations each year is likely to continue running in the region of 40,000-50,000 for the foreseeable future.
“Longer term, the current tax regime could push half of all rental homes into a limited company, significantly reducing the existence of landlords who own buy to lets in their personal name.”
Scotland saw the biggest rise in buy to let incorporations, with an 8.4% increase from 2022, reflecting the larger tax gap between individual and corporate landlords in the region.
The South West and North East were the only regions where the number of new companies fell slightly, but the number of properties owned by existing companies continued to grow.
Landlords from across the UK also sought higher returns by investing in the North of England, where a record 58% of BTL properties in the North East were owned by companies based outside the region.
The surge in incorporations means there are now 345,426 active BTL companies in the UK at the start of 2024, an 11.6% increase from 309,643 at the beginning of 2023.
These companies owned a total of 615,077 properties in England and Wales, an 82% increase from the end of 2016.
That’s when higher rate taxpayers lost the ability to deduct mortgage interest from their tax bill for properties in their personal names.
However, only 38% of all buy to let properties held in a limited company were owned by companies set up after 2016.
Of the 615,077 BTL properties owned by companies, 458,838 (75%) had a mortgage charge against them.
The number of mortgages held by these companies rose by 10% in the last 12 months, while the total number of buy to let mortgages fell by 3% in the same period.
This means that corporate landlords were more likely to use debt financing than individual investors.
The growth in BTL incorporations was mainly driven by smaller landlords, who increased the number of properties held in single-property companies by 21.9% in the last 12 months.
That’s in contrast with a 3.8% increase in the number of properties held by companies owning 20 or more homes.
The only exception was that companies owning 20 or more homes increased their mortgage charges faster than their property holdings, suggesting that they were borrowing more to expand their portfolios.
Buy to let companies now account for 24% of all properties held in any type of limited company, up from 16% in 2016.
The total number of properties owned by all limited companies, not just those for buy to let purposes, rose by 21% between 2016 and the end of 2023.
For more information about landlord tax and incorporation, contact Property118’s experts:
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