In an effort to flatten steep growth in BTL lending, new measures are being introduced to safeguard the market from another crunch, but will efforts to stabilise the space actually de-stabilise the BTL market?
A major lender in the market, Shawbrook Bank have estimated the average annual cash profit for a mortgaged rental property is currently £2,900 but the equivalent figure in 2020 will drop to £1,100 thanks to upcoming changes such as less tax relief.
Recent studies by the Residential Landlords’ Association suggest that this may drive 25% of private landlords to exit the market completely and a further 56% plan to use rent rises to help their balance sheets cope with the tax changes. But, with the most recent inflation estimates from the BoE pegged at 2.7% next year, rent rises are going to be an incredibly unwelcome, and perhaps unrealistic, increase in living costs for UK tenants.
Although the changes will disrupt the market, it is expected that the landscape will see a shift from private to a more formal business structure such as a limited company, often known as a “Special Purpose Vehicle” or SPV. That’s because amidst the panic and knee jerk strategies currently dominating the headlines, BTL can still be a profitable investment , for those in the know. Landlords investing using a limited company structure are not affected by the new tax measures and this has prompted many to consider incorporating.
Under the guise of a company, landlords will be able to purchase properties with greater tax efficiencies (assuming they’re in it for the long haul) and without being subject to the new stress tests, giving access to higher LTV products and allowing them to better leverage their assets and grow at an increased pace.
But making the shift and incorporating an existing private portfolio comes with its own set of challenges and should only be undertaken after speaking to an accountant for advice.
Loan.co.uk can help your clients to raise finance, whether they’re looking to transfer an existing portfolio into a company, or if they’re looking to raise finance for additional property to be purchased via a company. This can include raising funds for the deposit or providing the full purchase price – 100% funding is often possible! There are a few solutions we can offer you and your clients here, including second mortgages, bridging loans and commercial loans.
If you’d like to discover more about the specialist lending solutions we offer for BTL clients, we have experts on hand that would be happy to visit you or answer questions over the phone. You can email us at introducer@loan.co.uk and we’ll introduce you to the regional sales director for your area.
