Limited firms dominate buy-to-let purchases | USAEMALL.com

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A growing number of buy-to-let landlords who own through limited companies have been purchasing rental homes, challenging the picture of decline across the private rented sector.

Limited companies purchased 85,000 new properties in England and Wales in the year to September — 165 per cent more than the 32,000 bought in the 12 months to September 2017, before tax and regulatory changes in the sector began to bite. 

The figures were calculated by Hamptons, the estate agent, and Nottingham University’s economics department, which conducted research using Companies House data. 

They found that more than three-quarters of buy-to-let limited companies that existed in 2017 had subsequently acquired properties. And 90 per cent of those companies in England and Wales, with 20-plus properties, had purchased more in the intervening period. 

Aneisha Beveridge, research director at Hamptons, said: “There’s been a lot of talk recently about how buy-to-let is dead. But the growth in the buy-to-let limited company market paints a different picture.”

Beveridge cautioned that there are fewer buy-to-let purchases happening across the board, with landlords buying 10 per cent of all homes sold in Great Britain this year, down from a peak of 16 per cent in 2015. 

But more of these purchases are going to limited companies, as the data comparing 2017 and 2024 indicates. Beveridge said: “This suggests that the drop off in new buy-to-let purchases has predominantly come from smaller landlords who own properties in their personal names.”

Many in this group, particularly those with large mortgages, would have benefited from a long-standing relief on mortgage interest payments. However the government began to phase out the relief for landlords owning in their own names in 2017, ending it in 2020. 

In recent years, higher interest rates added to pressure on mortgaged landlords. The average buy-to-let rate on a two-year fix is 5.24 per cent, according to Moneyfacts data. 

Creating and operating a limited company brings its own costs. Landlords wishing to move an existing portfolio into company ownership may be liable to capital gains tax on the transfer, as well as a stamp duty surcharge — raised to 5 per cent from 3 per cent in this week’s Budget. Administrative costs may include accountancy advice, with annual reports to be submitted to Companies House. Corporation tax may also be payable. 

As a result, limited company ownership is often more attractive for new purchases. Some 27 per cent of purchases in the past 12 months went into a company with a single property. In 2017, it was 20 per cent, at a time when incorporation was more common for large-portfolio landlords. 

“Given the costs associated with incorporating this suggests these investors are in it for the long run,” said Beveridge.

Fierce competition between tenants to secure a UK rental home has eased slightly in the past year, with the stock of homes for renting up 18 per cent compared with 2023, according to a recent rental report by property site Zoopla. Rents are still rising, but at 5.4 per cent compared with 10.2 per cent in 2023. 

However, competition among tenants is still running at twice pre-pandemic levels, Zoopla added. It expected demand to stay high into 2025.

“The unaffordability of home ownership will continue to support demand for renting, especially across southern England, where a sizeable proportion of workers are unable to buy,” Zoopla said.