Younger landlords are increasingly structuring their buy-to-let portfolios through limited companies from the very outset.
New research from Paragon Bank shows the shift in their behaviour is being driven by a new generation of investors entering the market with different expectations around tax, ownership and long-term portfolio planning, rather than by established landlords restructuring later in their careers.
Limited company ownership becoming mainstream
Paragon’s survey of more than 500 landlords, conducted for its report How limited company ownership is becoming the new normal, found that 29 per cent now hold all of their properties within a limited company structure. A further 36 per cent split ownership between corporate entities and personal names, meaning almost two-thirds of landlords have created at least one Special Purpose Vehicle (SPV) for buy-to-let investment.
Clear age divide
Paragon’s data shows there’s a marked age divide. Among landlords aged 25 to 34, 57 per cent of properties are held in limited companies, with the remaining 43 per cent owned through a mix of corporate and personal structures. In the 35 to 44 age group, limited company ownership falls to 46 per cent, with a further 39 per cent held in mixed structures. Adoption levels then steadily decline for older landlords.
The same pattern appears when ownership data is viewed by experience. Landlords who have been active for five years or less hold 80 per cent of their portfolios in limited companies, with the remainder split between personal ownership, mixed structures and limited liability partnerships. That share drops to 40 per cent among those with six to 10 years’ experience, then falls to 21 per cent among landlords with 11 to 20 years in the market and is at just 16 per cent for those with more than two decades of experience.
Long-term impact of tax changes
Louisa Sedgwick, managing director of mortgages at Paragon Bank, said the trend reflects the long-term impact of tax changes introduced in the latter half of the previous decade.
“In a bid to mitigate the impact of tax changes introduced in the latter half of the previous decade, the last 10 years have seen more and more landlords opt to hold their buy-to-let properties in limited companies,” she said. “Interestingly, our research shows that younger and newer landlords are more likely to structure their portfolios this way and do so earlier on in their landlord careers.”
Lenders adapting their approaches for a new generation
She added that Paragon has adapted its lending processes in response to the changing profile of landlords entering the market.
“This is something we’ve seen more of, and recent enhancements to our mortgage application system are supporting these landlords,” she says. “We’ve streamlined applications for simple buy-to-let cases, significantly cutting the number of supporting documents we ask for and speeding up the journey.
“In part, I think that these landlords benefit from more advice and education on the benefits and key considerations than those who came before them. With some of our older, more experienced landlords perhaps eyeing retirement, helping the next generation of landlords to succeed is vital, so this support can only be a good thing.”
BuyAssociation has reported before on the growth of younger landlords and their preference for entering the market using limited company structures for their buy-to-let investments. This, though, shows that the trend has now reached such a level that lenders are having to adapt their approach (and their products) to specifically accommodate their different needs.
