For the first time, considerably more than half (59%) of all buy-to-let mortgage lenders offered products to landlords who use limited companies as borrowing vehicles in Q2 2019, according to the results of the latest Buy-t- Let Mortgage Index published by Mortgages for Business.
The number of providers serving corporate buy to let borrowers has been growing steadily since the tapered introduction of new tax rules for landlords began two years ago. The restriction of income tax relief on mortgage interest has meant that limited companies can be a more tax and financially efficient method of operating property portfolios than the self-employed route which was used predominately by landlords in the past.
The findings are also reflected in the total value of buy-to-let mortgage applications completed in the quarter at Mortgages for Business. By value, more than half (52%) were from landlords using limited companies.
In addition, the Index indicates that the gap in pricing between the average buy-to-let mortgage rate (3.1%) and the average rate available to limited companies (3.7%) diminished by two basis points when compared to the first quarter of the year.
Commenting on the findings, Steve Olejnik, managing director of Mortgages for Business said:
“The Index points to some good news for landlords, particularly those using limited companies who now have a greater choice of lenders than ever before, to help them finance their rental properties and access to better rates. In particular, we’ve seen the options increase at the more specialist end of the market, and we’re delighted that the number of lenders in that space is growing.”
Lenders margins over the cost of funds fell slightly to 0.54% from an average of 0.55% in Q1 2019. While this is not a huge cut, it demonstrates that lenders are really having to squeeze margins to remain competitive. Low LTV products fared the best, with margins dropping below the 0.5% mark (0.48%) for the first time since Mortgages for Business started tracking costs and fees back in 2013.
There was an increase in the proportion of fee-free and flat fee-based products, up to 20% and 38% respectively, to the detriment of percentage-based fees which fell to 40% despite having peaked at 48% at the end of 2018. This is a positive outcome for borrowers, who tend to dislike percentage-based fees and another sign that lenders are vying for business in a challenging market. Flat lender arrangement fees, sitting at £1,504, fell slightly quarter on quarter which bodes well for landlords in need of finance.