Limited company “overpricing” will soon disappear as more lenders enter the sector, according to buy-to-let experts.
The Chancellor’s overhaul of buy-to-let taxation has led experts to predict a surge in borrowers holding their properties in limited company structures. This is because the Government has hinted these borrowers may be exempt from the increased stamp duty rates coming into effect in April if they hold over 15 properties.
Presently, there is a premium for limited company products, although Foundation Home Loans commercial director Simon Bayley believes market forces will soon drive down rates.
He says: “Certain lenders are charging up to 100bps extra for this product over their core range, when the risk is no different – effectively asking landlords to pay any tax saving from using a limited liability company structure to the lender instead.
“Fortunately, the intermediary community is far too canny to go on selecting lenders who decide on this kind of pricing model. As soon as they realise that there are lenders who are not in the market to take short-term advantage of landlords keen to minimise their tax exposure, then I am sure that market forces will dictate that this kind of overpricing will quickly disappear.
“It certainly will not win any friends among advisers and their landlord clients in the long term.”
The Buy-to-Let Business managing director Ying Tan says: “With the changes Osborne has made he is clearly pushing people towards ownership in limited companies, as that will be a far more tax-efficient vehicle.
“What that means is that, over the next couple of years, there will be more mainstream lenders coming into this space as they want to keep their market share within buy-to-let. Competition creates a frenzy and that will lead to price reductions.”
In April, the Government is introducing a new 3 percentage point stamp duty surcharge on second properties and from 2017 buy-to-let tax relief will be gradually tapered down to the basic rate of tax.