Landlords who purchase properties through limited companies could negatively impact their earnings due to higher mortgage rates.
Increasing numbers of landlords are choosing limited company structures in a bid to avoid recent tax changes affecting the buy-to-let market – namely, the limits being placed on mortgage interest tax relief.
However, according to new research from Private Finance, mortgage deals for limited company borrowers can be higher than those available for individual borrowers. This may remove the advantage of saving money through tax, especially for landlords with less than four properties in their portfolio.
Landlords are being urged to speak to a tax specialist to get impartial and up to date advice prior to making any moves towards a limited company, and to consult an independent mortgage broker.
Shaun Church, Private Finance’s Director, said: “landlords shouldn’t rush into this assuming it’s a safe bet for saving money. Limited company mortgage products are available through a handful of smaller lenders, resulting in higher rates compared to personal borrowing.”
He continued: “Investors need to drive down mortgage costs as much as possible to prevent this from eating into their profits.”
But Church stressed that each investor is different, and there is no one solution for landlords. Therefore, landlords should always seek advice so that they know their options, and know what would work best for them as an investor and as a mortgage borrower.
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