Brokers forecast rise in limited company lending

Nearly half of mortgage brokers expect the volume of buy-to-let portfolio limited company lending they write to increase in the next 12 months, research undertaken by Paragon Bank has revealed.

The research showed 49 per cent of intermediaries expect to place a higher volume of buy-to-let mortgages written to portfolio landlords operating through limited companies over the period, with a further 38 per cent anticipating more non-portfolio limited company business.

Just 14 per cent of brokers expect more personal name portfolio business in the period, with just six per cent expecting growth in personal name non-portfolio buy-to-let lending. 

The research, undertaken by BVA BDRC for Paragon’s Mortgage Intermediary Insight Report, found that mortgages written to portfolio landlords operating through limited companies currently account for just under a quarter (24 per cent) of cases placed but brokers predict this to rise due to the favourable tax treatment of incorporated businesses.

A separate BVA BDRC survey of landlords covering the first quarter of this year showed also that 62 per cent of those intending to expand their portfolios plan to purchase properties within a limited company structure, up from 43% in Q3 2021.

Louisa Sedgwick, Paragon Bank Commercial Director of Mortgages, said: “With such a strong emphasis on the specialist section of the market, lending to landlords operating as limited companies has long been one of Paragon’s strengths and we’ve seen an increase in this type of business in recent years.

“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 per cent, compared to the 145 per cent 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.”

Further Paragon research found that a profitable full-time income is made by 43 per cent of landlords whose portfolios are owned within a limited company structure, compared to 26 per cent amongst investors who hold properties in their personal names.