In recent months an increasing number of buy-to-let investors have been taking out loans through limited companies – but mortgage brokers are now warning that this could give way to ‘the next PPI mis-selling scandal’.
According to research carried out by Mortgages for Businesses, buy-to-let borrowing via limited companies overtook personal borrowing for the first time on record in the second quarter (Q2) of 2017.
Overall, so-called ‘limited company lending’ accounted for more than half (51 per cent) of all buy-to-let lending in Q2.
The sudden surge in the popularity of ‘limited company lending’ is for the most part thought to be linked to recent changes to mortgage interest tax relief, which can effectively be bypassed by those who are borrowing as a limited company as opposed to as a personal investor.
However, concerns of a potential mis-selling scandal have come to the surface owing to the fact that the average fees and mortgage rates typically paid by limited company borrowers tend to be much higher than those paid by personal borrowers.
The extent of this rift was highlighted by a separate study recently carried out by broker Private Finance, which found that limited company borrowers were likely to see their overall income cut by as much as £1,000 per year compared to personal borrowers.
According to Oliver Marley, a mortgage adviser at London-based Independent James, an increasing number of advisers appear to be pushing investors towards limited company status.
He says: “We have lots of advisers saying it is ‘tax efficient’, but they are not accountants.
“Limited company interest rates are normally higher and fees are higher. The way interest rates are at the moment it is a balance between the amount of tax and interest, and when we have looked at scenarios, they are not too far away from each other.”
Ruth Whithead, of financial advisory firm Ruth Whithead Associates, echoed these concerns.
She said: “It is a very litigious world we live in, and anyone who thought they had been short-changed would try and claim money back.”
Carter Lemon Camerons LLP Solicitors is a City law firm with experience in providing legal services to businesses and victims of financial mis-selling. Unlike many City practices we are happy to act in smaller private legal matters, bringing the same care and consideration as we do to large commercial matters. For more information about our swaps and financial mis-selling services, please contact Seamus Smyth or telephone: 020 7406 1000.