January 15, 2024 10:39 am

Insert Lead Generation
Nikka Sulton

In 2023, the property landscape saw a marked decrease in homes acquired by landlords. However, in contrast, there has been a substantial surge in the formation of limited companies specifically for managing buy-to-let properties. Despite the decline in individual property acquisitions, a noteworthy trend emerged as landlords opted to organize their ventures through the establishment of limited companies.

The data, sourced from lettings agency Hamptons, sheds light on this dichotomy. In the course of the year, a record-breaking 50,004 new limited buy-to-let companies were set up across the UK. This figure stands as a notable three percent increase from the previous record of 48,540 established in 2022. Hamptons characterizes the dynamics of 2023 as a year of two halves, showcasing the contrasting patterns within the property market during this period.

In the first half of the year, post the mini-budget’s implications, there was a discernible dip of around two percent in the creation of new incorporations for buy-to-let properties compared to the same period in 2022. This trend shifted notably in the latter half of 2023, witnessing a resurgence as more investors grappled with heightened mortgage rates. During this phase, the establishment of limited companies dedicated to managing buy-to-lets surged, exceeding the levels seen in 2022 by a substantial nine percent.

The regional landscape demonstrated varied dynamics, with Scotland leading the way by recording an impressive 8.4 percent year-on-year upswing in the formation of new companies. This surge in Scotland can be predominantly attributed to the notable contrast in tax rates between individual landlords and limited companies, making the latter a more appealing option in terms of financial considerations. This nuanced shift in the property market, influenced by changing economic factors, showcases the adaptability of investors in response to evolving financial landscapes.

In the North East, a noteworthy development is observed as a record 58 percent of limited company buy-to-lets are found to be held in companies set up outside the region. This stands out as the highest proportion when compared to other regions, showcasing a trend where landlords from various parts of the UK are strategically targeting buy-to-let opportunities in the North East, known for its higher yielding properties.

This shift in geographical preference aligns with a broader trend, and as of the beginning of 2024, the total count of active limited companies designed for holding buy-to-let properties in the UK reached an impressive 345,426. This figure reflects a notable 11.6 percent increase from the count recorded at the outset of 2023, which stood at 309,643. Noteworthy is the fact that a significant proportion, approximately 68 percent of these active companies, were established within the window of 2017 to 2023. This timeframe coincided with the phased implementation of tax changes, indicating a strategic response by landlords to evolving regulatory landscapes during these years.

In total, these companies collectively possess 615,077 properties across England & Wales, marking an 82 percent surge from the end of 2016. This uptick coincided with changes affecting higher-rate taxpayer landlords, reducing the share of mortgage interest they could offset against their tax bill for properties held in personal names. However, companies established post-2016 still represent only 38 percent of the entire buy-to-let portfolio held within limited companies.

Among the 615,077 limited company buy-to-let properties, approximately 75 percent, totaling 458,838, have mortgages associated with them. Notably, the count of outstanding limited company mortgages has increased by 10 percent in the past 12 months, despite an overall three percent decrease in the total number of buy-to-let mortgages over the same period. This points to the fact that limited company landlords are more inclined to have mortgages compared to individual investors holding buy-to-let properties in their personal names.

The recent growth in buy-to-let incorporations is primarily attributed to smaller landlords, with a significant 21.9 percent surge in the number of homes held by companies owning a single property over the last year. In contrast, companies owning 20 or more homes witnessed a more modest 3.8 percent increase during the same period.

Companies possessing 20 or more homes experienced a notable increase in the number of mortgage charges, outpacing the growth in the number of homes. This trend implies that these investors are opting to leverage their portfolios, rather than reducing debt. As a result, limited companies dedicated to holding buy-to-lets now represent 24 percent of all properties held within any type of corporate structure, a notable increase from the 16 percent recorded in 2016. Between 2016 and the close of 2023, the overall count of properties owned by all limited companies, not exclusive to those established for buy-to-let purposes, witnessed a substantial 21 percent rise.

Aneisha Beveridge, Head of Research at Hamptons, notes, “Despite a slowdown in the sales market last year, there was a sustained surge in landlords opting for incorporation. The record-setting number of companies established for holding buy-to-let properties indicates a lasting commitment from landlords, particularly considering the upfront costs associated with incorporation. This growth is primarily driven by existing landlords transitioning properties into a corporate structure, seeking protection from escalating interest rates. Meanwhile, the influx of new landlords entering the market has remained relatively subdued.”

“For as long as landlords continue rolling off cheap fixed-term mortgages onto rates which are twice or triple what they were paying, the number of homes being put into a corporate structure will remain high.  The number of buy to let incorporations each year is likely to continue running in the region of 40,000-50,000 for the foreseeable future.  Longer term, the current tax regime could push half of all rental homes into a limited company, significantly reducing the existence of landlords who own buy-to-lets in their personal name.”

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