Many big mainstream lenders do not cater for limited company borrowers and their absence affects product pricing
The pending changes to mortgage interest relief for landlords borrowing in their own name started the movement towards incorporation. Now the PRA’s SS13/16 – Underwriting Standards for Buy-to-Let Mortgage Contracts – will push them further down the limited company route because the guidelines for income cover ratios and stress tests apply only to personal borrowing.
The results of our latest Limited Company Buy to Let Index confirm this. The number of lenders offering products to limited companies held steady at 14, albeit we tend to exclude less active and small, regional lenders from the data set.
The average number of products available to limited companies is 195, which represents 16 per cent of the entire buy-to-let market. This is up from 13 per cent in the first half of 2016, although the number has stabilised since June despite the fact Metro Bank went against the flow when it stopped offering the same products to individuals and corporates in favour of more commercial rates.
Apart from Paragon, many big mainstream lenders do not yet cater to limited company borrowers, including Accord, BM Solutions, Coventry, Santander, TMW and Virgin Money. Some of these lack the processes or underwriting
skills and I suspect many are hamstrung by legacy computer systems. Their absence affects pricing.
Across the sector, the average rate of a buy-to-let mortgage fell to 3.3 per cent at the end of September, from 3.7 per cent in June. Of the products for limited companies, rates fell to an average of 4.3 per cent from 4.5 per cent in June. This makes rates for limited companies around 1 percentage point higher than the market average; this is because they cannot access the very cheapest products.
The good news is that many lenders that cater to limited companies offer the same rates as for personal borrowers; think principally Foundation Home Loans and Paragon, which currently cater only to SPVs. However, our own lending brand, Keystone Property Finance, as well as Aldermore Bank, InterBay and Shawbrook, will accommodate trading businesses too.
Sixty-three per cent of landlords purchasing buy-to-let property are now doing so via a limited company structure – up from just 21 per cent before the changes to interest relief were announced.