Three-quarters of landlords who plan to buy a new rental property in the next year will use a limited company, new research reveals.

Paragon Bank's poll of nearly 1,000 landlords, carried out by BVA BDRC in the second quarter of the year, shows this was the highest level recorded on BVA’s tracker survey and up from 62% during the first quarter. Those who plan to buy in an individual name fell to 17% from 41% recorded in the final quarter of 2021.

Mortgage interest

Buying via a limited company structure means landlords can deduct mortgage interest from company income and pay tax at corporation tax rates. It can also offer more favourable mortgage financing options; most lenders set interest coverage ratios at 145% for higher-rate taxpayers, while limited company applications require a ratio of 125%. They can typically secure higher loan amounts too.

Louisa Sedgwick, Paragon Bank’s commercial director of mortgages, says holding rental property within a limited company structure has been growing in popularity since the mortgage interest relief changes introduced in 2017, but has accelerated in the past year.

Portfolio landlords

She adds: “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.”

The average portfolio size was 16.9, up from 15.6 in Q1 and 13.1 in the final quarter of 2021. Of those landlords, the average number of properties held within a limited company in Q2 was 12.3, up from 11.7 in Q1 2023 and 7.8 in the final quarter of 2021.