According to the latest Buy-to-Let Mortgage Costs Index from Mortgages for Business, there are already 122 buy-to-let products for limited companies.
This figure comes shortly after the Chancellor announced in his summer Budget that buy-to-let interest relief for private landlords was to be abolished. However, landlords can still claim full interest relief by taking out a buy-to-let mortgage as a limited company. Interest payments would then qualify as a business expense and would therefore qualify for tax relief.
Landlords that opt to mortgage through a limited company however must bear in mind that they will have to pay a premium in comparison to the market average. The typical cost of a mortgage product for a limited company was 5.4% per annum at the beginning of July but the average yearly rate for the buy-to-let market as a whole was 4.6%.
‘The mortgage market was certainly well prepared for the Chancellor’s grab on landlord’s tax relief,’ said David Whittaker, managing director of Mortgages for Business. ‘Mortgages which allow limited companies to be borrowers comprise 13% of all products on the buy to let market.’
Budget changes lead to BTL product rise
Continuing, Whittaker said, ‘It means that a good number of landlords and investors will have the opportunity to outfox the Summer Budget by taking advantage of the tax benefits associated with registering as a limited company. However, limited company mortgage products may not be for everyone. Registering as a limited company takes time, money and can be quite complex. The average interest rate for limited company mortgages is also greater than the average rates available in the wider market.’
‘That said, even if the mortgage costs for limited companies are above the rest of the market, this could come down as demand grows and lending to companies becomes more competitive. And, for once, prospective tax changes will work in favour of investors as the rate of Corporation Tax is due to fall from 20% to 19% from April 2017 and to 18% from April 2020 – which, if profits are to be retained within the company, would represent a significant tax saving for a higher rate tax payer,’ he concluded.