As limited company mortgage applications soar, the number of specialist lenders and products is also on the rise
It is no secret the number of borrowers using limited companies to make buy-to-let mortgage applications is increasing. Like many others in the industry, we expect the figure to continue to grow throughout the year as landlords get to grips with new strategies to expand their portfolios in the wake of the Government’s proposed tax changes.
According to our first Limited Company Buy-to-Let index, limited company applications with us accounted for around 18 per cent of all buy-to-let transactions in the first half of 2015. By H2, that figure had risen to 21 per cent; by the end of December it had rocketed to 38 per cent; and now, at the time of writing (end of January 2016), it stands at 43 per cent.
Only time will tell if this trend will continue but my gut tells me that, for the time being, the trajectory will only continue upwards.
Fortunately, the number of lenders and products available to such applicants is also on the up, which means that for those using special-purpose vehicles in particular there are sufficient options.
Pricing has been a contentious issue of late, with questions around whether or not to charge a premium to limited companies.
I do not think a premium should be charged for the sake of it but I believe pricing can be different because of the increased underwriting involved. When lending to a person, you check him/her out, whereas when lending to a limited company you check out the individuals and the company. Clearly there is an increased cost implication to the latter.
Whether lenders choose to pass on the extra cost to the borrower is up to them. For some time, both Paragon Mortgages and Metro Bank have offered the same rates to SPV limited companies as to individuals. In December, Foundation Home Loans decided to follow suit. They have all decided to absorb the cost internally, instead of passing it on like other lenders.
The type of corporate structure must be considered too. Assessing trading limited companies is generally more complicated and time-consuming than assessing SPVs and, as such, I would not expect the likes of Aldermore Bank, Keystone or Shawbrook Bank to adjust their pricing so that it was akin to their individual rates.
We are currently analysing the results of our Buy to Let Mortgage Costs index for Q4 2015, which looks at how fees and other charges impact what borrowers ultimately pay. Initial findings appear to show that charges such as fees still have a declining impact on total costs. In Q1 2013, charges added an average of 0.67 per cent to the cost of a buy-to-let mortgage, but in Q4 2015 this decreased to 0.48 per cent.
There has also been a shift in the proportion of products with percentage-based fees, which has climbed steadily as lenders look to claw back some margin. Fees charged on flat-fee products have stayed at around £1,500 – where they have been since late 2010.
David Whittaker is managing director at Mortgages for Business