Buy-to-Let’s Final Lap: How Ltd Co Loans Are Driving Out Classic BTL Lending

Electric vehicles are gaining traction, driven by government mandates such as the UK’s 2035 ban on new internal combustion vehicle sales, falling battery costs, and consumer demand for sustainability. In 2024, EVs accounted for 18% of global car sales.  By 2037, while some petrol and diesel vehicles may still be being sold in developing regions, they will be largely phased out in major markets, replaced by electric vehicles or hydrogen-powered alternatives.

Buy-to-let (BTL) lending to individual landlords, once the cornerstone of the UK’s private rented sector, is heading in the same direction as the petrol-driven car. Landbay’s data projects its complete decline by 2037.

When we started lending in 2014, our loans were all to individual landlords; we didn’t have any Ltd Co borrowers initially.  And yet, by 2018, approximately 55 per cent of our total live gross loan amount was to individual landlords.

Several factors explain why Ltd Co loans were less popular a decade ago. Establishing and managing a limited company incurred costs such as accountancy fees. Small-scale landlords with one or two properties, didn’t like the extra expenditure or the administrative burden of annual filings with Companies House. It didn’t seem worth it.

Tax efficiency was not a pressing concern before 2016 either. Individual landlords could deduct 100 per cent of their mortgage interest from rental income for tax purposes, regardless of their tax bracket. This made individual ownership simpler and more cost-effective, reducing the appeal of incorporation.

Additionally, many landlords, particularly non-professionals with small portfolios, were unaware of Ltd Co options or their benefits, perceiving them as tools for large-scale investors or businesses rather than individual property owners.

And product availability was limited. High street banks focused on individual borrowers. Ltd Co products were niche, often only provided by specialist lenders with higher interest rates (typically 0.5 to 1.0 per cent above individual rates) and fees.

According to the MFB BTL index, 57 per cent of lenders did not offer Ltd Co products in Q1 2018. Like many other lenders, we prioritised lending to individuals.

George Osborne changed everything.  In 2015, he announced the gradual reduction of mortgage interest tax relief in the Summer Budget, effective from April 2017 and fully implemented by April 2020.

This more than any other development in BTL sparked interest in Ltd Co structures, and became the primary driver of incorporation. It saved higher-rate taxpayers thousands of pounds annually: corporation tax at 19 per cent was far more favourable than personal income tax rates of up to 45 per cent.

Lenders adapted to meet rising demand. From 2017, increased competition lowered Ltd Co mortgage rates and fees, narrowing the cost gap with individual loans.

Product numbers reflect the shift. In Q1 2018, the MFB BTL index recorded 1,466 BTL products, with only 367 for Ltd Co borrowers, meaning 75 per cent were for individual landlords.  By Q2 2022, of 2,570 total BTL products, 1,320 were for Ltd Co borrowers, reducing individual landlord products to under 50 per cent.

The rise of Ltd Co loans is evident in new business registrations.

In 2024, a record number of limited companies were established to hold BTL properties. Hamptons reported over 60,000 new companies, a 23 per cent increase from 2023, estimating that up to 75 per cent of new BTL purchases are now made through company structures.

Landbay is not immune to this revolution in BTL lending.  By 2022, just 25 per cent of our total live gross loan amount was to individual landlords. Today, only 15 per cent of Landbay’s total live gross loan amount is to individuals.  If current trends persist, traditional BTL lending to individual landlords will cease within 12 years, likely sooner. By 2037, the model that transformed the UK’s relationship with property and revitalised the private rented sector will be gone forever.

Our journey mirrors the profound shift in the buy-to-let landscape – much like the automotive industry’s transition to electric vehicles. Just as petrol and diesel cars are being phased out in the UK, replaced by sustainable alternatives, traditional BTL lending to individual landlords is on track to vanish by 2037.  Tax reforms, lender innovation, and the rise of limited company structures have accelerated this change, proving the mortgage market’s ability to adapt to new realities.

For adviser use only. Please note this content has been supplied by our lender partner and as such, is their responsibility. No party shall have any right of action against Legal & General in relation to the accuracy or completeness of the information in this article.