Record numbers of landlords are investing in buy-to-let properties via a limited company, and the high-yielding northern property market is attracting the most interest. 

In recent years, more and more Landlords have incorporated their investments in a bid to maximise their profits. This is done by setting up a limited company, which is then used to buy investment property, and means the income from the property is taxed in a different way.

Particularly for higher-rate taxpayers, this can be particularly beneficial since the rules changed around mortgage interest income tax relief, as it can mean the owner can offset a higher percentage of their borrowing costs against their income, reducing their tax bill.

This trend also comes hand-in-hand with an emerging location preference, which again reflects the fact that buy-to-let landlords are increasingly seeking to achieve the best yields and returns in what has been a difficult period for many. This has led to a rise in the Number of limited company landlords targeting the north of England.

According to the latest figures from Hamptons, a record 58% of limited company buy-to-let properties based in the north east were held within a limited company that was set up outside the area. This indicates investors are increasingly willing to buy property in areas performing strongly, rather than close to where they live.

Rising limited company numbers

A new report from Hamptons has revealed that a record 50,004 limited companies for buy-to-lets were set up last year across the UK, up from the 48,540 set up in 2022. However, the agency notes that the year was polarised in terms of its housing market activity due to wider economic factors.

At the start of the year, mortgages rates were climbing, and there was a slowdown in the number of buy-to-let incorporations being set up. However, as investors found mortgage deals ending and were increasingly looking at ways to save, a limited company became a more attractive option for many, and the numbers began to pick up.

In the second half of 2023, the number of buy-to-let companies being set up was 9% higher than the levels seen during the same period in 2022. This increase means that there were 345,426 limited companies holding buy-to-lets at the start of this year – 11.6% higher than the start of 2023.

Since the end of 2016, when the government first started phasing in changes to mortgage interest tax relief for buy-to-let income, there has been an 82% increase in the number of limited company landlords in the UK. Smaller landlords – who own fewer properties – have actually spurred more of the rise than portfolio landlords.

Investors target the north

Many parts of the north of England continue to enjoy property prices below the national average, which is one factor enticing those looking at property investment to the area, particularly as mortgage rates remain higher. However, demand has also boosted prices, leading to greater levels of capital appreciation.

According to Sourced Franchise, the average house price in the north as a region increased from £205,875 in May 2022 to £211,392 in May 2023, which is a rise of 2.7% annually. In the south, prices increased by just 0.8% in the same period, from £385,719 to £388,917.

The standout regions for property investment capital appreciation were the north east with 4% house price growth, the East Midlands (3.4%), the north west (2.7%) and the West Midlands (2.2%). In the south, the south east saw the highest house price gains of 1.5% for the year.

 Shelter from interest rates

Aneisha Beveridge, head of research at Hamptons, says: “Despite last year’s slowing sales market, there was no let-up in landlords rushing to incorporate.

“Rather, the record number of companies set up to hold buy to let homes suggests a long-term commitment from landlords – particularly given the upfront costs associated with incorporating.  The growth has been driven mostly by existing landlords moving properties into a corporate structure to shelter themselves from higher interest rates.  Meanwhile the number of new landlords setting up shop has remained relatively muted.

“For as long as landlords continue rolling off cheap fixed-term mortgages onto rates which are twice or triple what they were paying, the number of homes being put into a corporate structure will remain high.  The number of buy to let incorporations each year is likely to continue running in the region of 40,000-50,000 for the foreseeable future.

“Longer term, the current tax regime could push half of all rental homes into a limited company, significantly reducing the existence of landlords who own buy-to-lets in their personal name.”