Buy-to-let limited company market
Room for growth in the limited company buy-to-let market
New legislation and an uncertain economic backdrop might have persuaded some it's not the time to invest in buy to let. But Matt Weaver, Head of Business Banking Real Estate, is convinced there's room for growth in the market.
Says Matt: "We’ve seen average rents in the UK continue to rise gradually in the past 12 months and, although subdued growth, regulatory changes and economic uncertainty – have been very much at the forefront of our investors' thinking, there’s strong demand for rented homes right across the country."
A more detailed look at the statistics, he says, shows that lower rental growth and low single-digit house price growth overall has masked some marked regional differences – rents rose 3.6%1 in the South West, for example. "House-price data2 suggest that capital-value growth has picked up since the turn of the year, accelerating to 5.0% year-on-year in the three months to April. At the same time, ONS data suggest that residential rental growth has also picked up once more, reaching 1.2% year-on-year in April3. Taken together, these trends suggest that returns on residential property remain positive."
Besides this, it's clear we’re seeing opportunities with what were private landlords moving to limited company structures, and an ongoing trend towards landlords operating larger portfolios of properties as more professional businesses.
Adjusting to new regulations
This market rationalisation is largely a reaction by buy-to-let investors to important regulatory changes in recent years. Matt explains: "The introduction in 2017 of the Prudential Regulation Authority guidelines for portfolio landlords (those with four or more properties) brought in stricter affordability requirements for lenders and borrowers.
"Changes like the gradual phasing out of mortgage interest tax relief by April 2020 is also encouraging landlords to consider a transfer to a limited company footing. However, there are a number of costs and implications that need to be taken into account when incorporating your property investments, such as stamp duty on transferring assets into a limited company. So such a decision needs to be weighed up carefully and landlords need to ensure they take independent financial advice."
There continues to be ongoing change in the sector, with one example being the change to minimum energy efficiency standards (MEES) that was introduced in April last year. Landlords now need to bear in mind that from next year they’ll need to meet minimum energy efficiency targets in the form of an energy performance certificate (EPC) of E or above for all their properties, so now’s the time to be making the necessary improvements. This can include areas such as installing a more efficient heating source, double glazing, loft insulation and other energy efficiency measures to ensure standards are met.
Expertise to support buy-to-let landlords
Matt says: "Despite some of the current challenges in the market, we're confident there's growth in buy-to-let. Not only do we have on-the-ground local expertise to help identify opportunities, but a number of specific products to help support property investment ambitions.
"To meet market demand, in 2017 Barclays Business Banking put together an improved lending offer for limited company portfolio landlords with a package that includes a dedicated real estate relationship manager, loan terms of up to 25 years, interest-only available up to 15 years and loan to value up to 60%4.
"In addition, this year we created a brand-new buy-to-let offer for professional landlords with up to three properties. Aimed at those wanting to borrow up to £1m through a limited company or LLP, minimum lending starts from just £50,000, with loan to value up to 70% for repayment and 65% for interest-only, along with flexible repayment terms4.
Matt continues "So, there are undoubtedly opportunities in buy-to-let, especially if you do your research on where to look and understand local and regional dynamics. Each area can vary considerably in terms of investment required, the market demand and rental dynamics. This is just some of the critical information required when looking for lending support for your business. We believe we're ideally placed to help small and large landlords address current challenges and to do our part to support sustainable growth in the limited company buy-to-let sector."
Any property used as security, which could include your home, may be repossessed if you don’t keep up repayments on your mortgage.
The views and opinions expressed in this content don’t necessarily reflect the views of the Barclays Bank UK PLC nor should they be taken as statements of policy or intent of Barclays Bank UK PLC. Barclays Bank UK PLC takes no responsibility for the veracity of information intimated by a third party and no warranties or undertakings of any kind, whether express or implied, regarding the accuracy or completeness of the information given. Barclays Bank UK PLC takes no liability for the impact of any decisions made based on information contained and views expressed in this presentation or article.