Despite much scaremongering over a market ‘in meltdown’, the truth is, buy-to-let is simply moving into another phase
I have spent a lot of time recently speaking at industry roadshows, forums and seminars. An issue that keeps popping up is that of limited company buy-to-lets.
The new tax rules mean purchasing a buy-to-let within a limited company has become far more popular. Last year, 24 per cent of all the buy-to-let business we processed was done via a limited company; in the first couple of months of this year, that figure shot up to 36 per cent. I would not be surprised if it rose further.
A question often put to me on the subject is for how long a firm must have been trading in order to satisfy lenders’ requirements. The answer is that it can be brand new.
It is easy enough to set up a limited company. It can be bought ‘off the shelf’ and that is acceptable to most lenders. The key point is that it is a tax wrapper. The lender will underwrite the company’s directors rather than be concerned about the trading record of the company itself.
Some brokers also worry about offering tax advice. This is a fair concern and the simple answer is that investors should seek advice from a specialist property accountant. If you have not already done so, it may be worth forging a link with a local accountant to help your clients in this respect.
From a broker’s perspective, the important issue is to give clients comparative information for both individual and limited company buy-to-let deals. Borrowers can then consult their accountant and make an informed decision on which deal is best for them given their circumstances.
Bear in mind that it is no longer a case of opting for the cheapest rate. It may be that a 3.5 per cent deal for a limited company is a better option than a 2 per cent deal for an individual when all factors are taken into consideration, especially the impact of taxation.
The Mortgage Works has a useful tax calculator, free to download from its website, which can help landlords better understand the implication of the changes. The first tax bill to include the effects of the changes will not be due for payment until January 2019. There will be a lot of buy-to-let deals written over the next two years and borrowers need to understand now what the effects of the changes will be.
Despite much scaremongering that the buy-to-let market is going into meltdown, the truth is, it is simply moving into another phase of development.
The choices on offer to landlords have become more complex, and personal circumstances, particularly with regard to their tax situation, will make a big difference to the way they decide to invest in property in the future.
But many landlords will continue to invest, which is why it is so important that they fully understand the options available to them.
Doug Hall is director of 3mc