Three quarters of landlords (74%) who intend to purchase a new rental property in the next year will utilise a limited company structure, a new record high.

Research published by Paragon Bank, and carried out by BVA BDRC, revealed this was the highest level recorded on BVA’s tracker survey and up from 62% of landlords who stated they would use a limited company during Q1.

Buying via a limited company structure can offer several tax benefits as limited companies can deduct mortgage interest from company income and pay tax at corporation tax rates, rather than an individual landlord’s personal income tax rate.

Limited company ownership can also offer more favourable mortgage financing options. While most lenders set interest coverage ratios at 145% for higher-rate taxpayers, limited company applications require a ratio of 125%. Limited company landlords can typically secure higher loan amounts, further driving the adoption of this approach.

Paragon’s research was based on responses from 983 landlords in July, and revealed that by comparison, those who plan to buy in an individual name have fallen from 41% recorded in the final quarter of 2021 to 17% in Q2 this year.

The research showed the average portfolio size of landlords with at least one property in a limited company, as well as the average number of properties held in a limited company structure within those portfolios, has increased since the final quarter of 2021 – suggesting portfolio landlords remain active purchasers of property.

Commercial director of mortgages at Paragon, Louisa Sedgwick, said: “Holding rental property within a limited company structure has been growing in popularity since the mortgage interest relief changes introduced by the Government in 2017, but it has certainly accelerated in the past year.

“As a lender that specialises in portfolio landlords, we have always attracted a higher proportion of limited company lending, but that has certainly increased, particularly as interest rates, and subsequently mortgage pricing, have risen.”

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