Electric vehicles are gaining traction, driven by government mandates like the UK’s 2035 ban on new internal combustion vehicle sales, falling battery costs, and consumer demand for sustainability. In 2024, EVs accounted for 18% of global car sales. By 2037, while petrol and diesel vehicles may still be sold in developing regions, they will be largely phased out in significant markets, replaced by electric vehicles or hydrogen-powered alternatives.
Buy-to-let (BTL) lending to limited companies, once a niche product in the UK’s private rented sector, is heading in the same direction as the electric car. Where once loans to ltd companies were a sort of G-Wiz of BTL mortgage lending, our data now projects its almost complete dominance by 2037.
When we started lending in 2014, our initial loans were to individual landlords; we didn’t have any limited company borrowers initially. By 2018, approximately 45 per cent of our total live gross loan amount was to limited companies.
Several factors explain why Ltd Co loans were less popular a decade ago. Establishing and managing a limited company incurred costs such as accountancy fees. Small-scale landlords with one or two properties didn’t like the extra expenditure or the administrative burden of annual filings with Companies House. It didn’t seem worth it.
Tax efficiency was not a pressing concern before 2016 either. Individual landlords could deduct 100 per cent of their mortgage interest from rental income for tax purposes, regardless of their tax bracket. This made individual ownership more straightforward and cost-effective, reducing incorporation’s appeal.
Additionally, many landlords, particularly non-professionals with small portfolios, were unaware of Ltd Co options or their benefits, perceiving them as tools for large-scale investors or businesses rather than individual property owners.
And product availability was limited. High street banks focused on individual borrowers. Ltd Co products were niche, often only provided by specialist lenders with higher interest rates (typically 0.5 to 1.0 per cent above individual rates) and fees.
According to the MFB BTL index, 57 per cent of lenders did not offer Ltd Co products in Q1 2018. Like many, we prioritised lending to individuals.
George Osborne changed everything. In 2015, he announced the gradual reduction of mortgage interest tax relief in the Summer Budget, effective April 2017 and fully implemented by April 2020.
This, more than any other development in BTL, sparked interest in Ltd Co structures and became the primary driver of incorporation. It saved higher-rate taxpayers thousands of pounds annually: corporation tax at 19 per cent was far more favourable than personal income tax rates of up to 45 per cent.
Lenders adapted to meet rising demand. From 2017, increased competition lowered Ltd Co mortgage rates and fees, narrowing the cost gap with individual loans.
Product numbers reflect the shift. In Q1 2018, the MFB BTL index recorded 1,466 BTL products, with only 367 for Ltd Co borrowers, meaning 75 per cent were for individual landlords. By Q2 2022, of 2,570 total BTL products, 1,320 were for Ltd Co borrowers, reducing individual landlord products to under 50 per cent.
The rise of Ltd Co loans is evident in new business registrations.
In 2024, many limited companies were established to hold BTL properties. Hamptons reported over 60,000 new companies, a 23 per cent increase from 2023, estimating that up to 75 per cent of new BTL purchases are now made through company structures.
We’re not immune to this revolution in BTL lending. By 2022, 75% of our total live gross loan amount was to Ltd Co. Today, 85 per cent of our total gross loan amount is to limited companies. While we still lend to individuals, and we expect there will always be a place for them in the market, if current trends persist, BTL lending via Ltd Co will dominate the market within the next 12 years, likely sooner.
Our journey mirrors the profound shift in the buy-to-let landscape, much like the automotive industry’s transition to electric vehicles. Just as sustainable electric vehicles are growing in dominance, BTL lending to landlords via Ltd company loans is on track to dominate the market by 2037. Tax reforms and lender innovation have accelerated this change, proving the mortgage market’s ability to adapt to new realities.
For more information about our products, contact your local BDM.