There was a significant rise in activity from investors looking for finance using a limited company during the second half of 2015, according to the H2 2015 Limited Company Buy to Let Index from Mortgages for Business.
The number of buy-to-let lenders offering finance to limited companies has also risen, as has the availability of products.
According to transactional data, new applications for limited company buy-to-let mortgages had dipped to 15% of all buy-to-let applications in October but, then, almost immediately started to rise sharply, spurred on by the stamp duty surcharge announcement. By December, new limited company buy-to-let applications accounted for just over 38% of all buy-to-let applications.
The report said this renewed vigour was also seen in completions for limited company buy-to-let mortgages, which accounted for nearly 22% of all buy-to-let completions in October – up from nearly 17% the previous month. By December this figure had risen to a little over 24%.
By the measure of case count and volume (£m loan amount), activity was also on the rise in H2 2015. The number of buy-to-let mortgage applications made by limited companies accounted for 21% of all buy-to-let cases – up from 18% in H1 2015.
When looked at by volume (£m loan amount), limited company applications accounted for c.25% of all applications – up from c.20% in the first half of 2015.
David Whittaker (pictured), managing director at Mortgages for Business, said: “The increase in limited company buy-to-let activity is to be expected since the proposed restrictions to buy-to-let mortgage interest relief for individuals paying the higher tax rate were announced by the government in the Summer Budget. Operating portfolios via corporate structures is expected to be more tax efficient, particularly for higher tax rate-paying individuals, including individuals where the new tax regime will tip them into the higher tax bracket where previously they had remained below it.
“The stamp duty surcharge has also had a direct impact on activity with investors trying to get purchases completed before 31 March 2016, particularly as the actual rules where the surcharge will apply will not be confirmed until 16 March 2016.”
30% of buy-to-let lenders offered products to limited companies in the first six months of last year, up from 23% in the first half of 2015. However, by the end of December this figure had risen to 36%.
The number of products for limited company applicants increased by nearly 50% to an average of 147 in H2 – up from 99 in H1 2015.
Whittaker said: “It’s good to see that the results continue to disprove the theory that there are insufficient products available to limited companies. It’s also interesting that pricing has come down, if only marginally. I wouldn’t be at all surprised if rates for limited companies reduced further in the coming months but I doubt we’ll see huge falls.”
In December 2015 products for limited companies were, on average, 0.7% points more costly than the market as a whole, a marginal reduction compared to July (c.0.8%). The average limited company rate in December was 4.4%, down from 5.4% in July. Across the entire market rates fell from 4.6% in July to 3.7% in December.