The news comes as the Chancellor announced in his July Budget that buy to let interest relief for private landlords was to be scrapped. One of the few ways landlords can retain their full interest relief is by obtaining a buy to let mortgage as a limited company – rather than as an individual – where any interest payment would qualify as a business expense and, therefore, qualify for tax relief.
However, landlords choosing to mortgage through a limited company pay a premium compared to the buy to let mortgage market average. The overall average cost of a mortgage product for a limited company stood at 5.4% p.a. at the start of July, whereas the average annual rate for the entire buy to let mortgage market was just 4.6% – a difference of 0.8 percentage points.
David Whittaker, managing director at Mortgages for Business, comments:
“The mortgage market was certainly well prepared for the Chancellor’s grab on landlords’ tax relief. Mortgages which allow limited companies to be borrowers comprise 13% of all products on the buy to let market.
“It means that a good number of landlords and investors will have the opportunity to outfox the Summer Budget by taking advantage of the tax benefits associated with registering as a limited company.
“However, limited company mortgage products may not be for everyone. Registering as a limited company takes time, money and can be quite complex. The average interest rate for limited company mortgages is also greater than the average rates available in the wider market.
“That said, even if the mortgage costs for limited companies are above the rest of the market, this could come down as demand grows and lending to companies becomes more competitive. And, for once, prospective tax changes will work in favour of investors as the rate of Corporation Tax is due to fall from 20% to 19% from April 2017 and to 18% from April 2020 – which, if profits are to be retained within the company, would represent a significant tax saving for a higher rate tax payer.”
