One thing that did stick though is that for every action there is an equal and opposite reaction, or, for those of you who can remember back that far, Newton’s Third Law.
For some reason it popped into my head again recently when I read about the effect COVID-19 has had on the number of landlords selling properties. Not surprisingly, the pandemic has had a major impact on the rental market over the past 12 months or so – as the number of cases of coronavirus went up, the number of rental properties sold went down.
According to estate agent Hamptons, just 131,000 rental properties were sold in Great Britain in 2020, the fewest number since 2013.
However, while there’s no doubt this can be partly attributed to the housing market grinding to a virtual standstill in the early days of the first lockdown, I think that only tells half the story.
Look a little deeper into Hamptons’ research and you’ll find the number of properties sold by landlords peaked in 2016. That’s the year after it was announced that mortgage interest tax relief would begin to be phased out, before finally being limited to the basic rate of income tax in the 2020/2021 tax year.
Again I return to Newton’s famous law about actions and reactions. The result of introducing the removal of tax relief has led to an exodus of casual landlords from the sector. In other words, those landlords who were most likely to sell up have already sold up, hence the slowdown in sales of rental properties.
Those who remain are the professional landlords, the ones who are in it for the long-term, who perhaps do it as a full-time job and who are less likely to divest properties and may be actively looking to add to their portfolios.
This shift in landlord demographics has produced its own reaction – the growth in the number of landlords operating as a limited company.
It’s no secret there’s been a big increase in landlords who are using limited companies to run their buy to let businesses or who intend to use a limited company structure to buy their next investment property.
The latest research by BVA BDRC shows that 18% of landlords now hold at least one property within a limited company. The research also shows that the typical number of properties held within a limited company has risen to 9.4 properties in Q1 2021 from 6.3 properties in the same period in 20203.
There are a number of reasons why landlords decide to incorporate. Limited company landlords can still offset mortgage interest against profits which, if they’re under £50,000, are only subject to Corporation Tax of 19% instead of income tax rates. Furthermore, interest coverage ratios on limited company applications are often lower than for most individual applications.
Whilst we’re unable to give tax advice, if you’ve got a limited company customer who’s looking to add to their portfolio, or one who’s thinking of purchasing their next property in a limited company structure, a specialist lender like Kent Reliance for Intermediaries could have the products they need.
We understand how challenging these cases can sometimes be and have a range of mortgages and criteria specifically designed with limited company landlords in mind. We’ve made our process as straightforward as possible and you’ll receive support every step of the way.
Buy to let has undergone significant changes in recent times and the continuing growth in the number of limited company landlords means it will continue to evolve in the coming years. If you need help in reacting to the changing face of the market, don’t forget there are lenders here who are always ready to support you and your customers.
