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Evaluating the limited company BTL landscape
Coming into 2024, there was little surprise in the fact that a record number of buy-to-let companies had been set up over the course of the year.
This figure of 50,004 buy-to-let companies being incorporated – as calculated in the Hamptons Monthly Lettings Index for December – easily surpassed the previous record of 48,520 established in 2022.
Focusing on this growth area for lenders and the intermediary market, according to the Pegasus Insight Landlord Trends research report for Q1 2024, limited company landlords manage portfolios which are, on average, twice the size of those non-limited company portfolios. The average number of properties held within a limited company structure is shown to have risen from 8.9 in Q4 2023 to 10 in Q1 2024. In addition, the share of limited company properties held by these landlords has doubled (36%-68%) in the last 4 years.
Looking at the wider BTL landscape, limited companies are also suggested to have a 22% share of the property stock held by landlords, with the majority of these landlords still holding their property within a single business. As expected, the incidence of limited company ownership increases with leveraging/portfolio size, with 37% of landlords with 4+ BTL mortgages having at least one property held in this way
From an operational perspective, two thirds of landlords use a personal bank account to process their letting finances. Business account usage is almost universal for limited company landlords (98%) and relatively uncommon amongst those with only personally owned rental properties (12%). Business account usage also increases significantly in-line with portfolio size, with just 17% of landlords with 1 – 10 properties exclusively using a business account to manage their lettings finances vs. 55% of those with 11+ properties
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Importantly, from an adviser and lender standpoint, the data adds that a limited company structure remains the most appealing for new purchases with almost two-thirds (61%) of landlords looking to purchase doing so though a limited company.
The pros and cons attached to a limited company offering have been covered many, many times. However, from an advice perspective, it remains crucial that intermediaries don’t just assume their landlord clients are as well-versed as they could, and possibly should, be on what is a weighty decision.
In a similar vein, although limited company offerings have been brought far more in line with the ‘standard’ BTL offerings of old, differing attitudes and approaches are still evident across the lending community. As such, advisers need to be aware of specialist attitudes from a product, criteria, underwriting and service standpoint. After all, adopting a one-size-fits-all approach simply doesn’t work in what remains a complex sector.
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