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Record Number of Buy-to-Let Companies Set Up in 2023

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    Buy-to-Let Companies Surge in Popularity as Sales Dip

    Over 50,000 buy-to-let companies were set up last year despite a drop in sales, according to research from Hamptons.

    A record 50,004 UK buy-to-let limited companies were set up in 2023, surpassing the previous year’s record (48,540) by around 3%.

    Read on to see how this affects Buy to let investor in 2024.

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      What is a Buy-to-Let Company?

      As the name suggests, a buy–to–let company is a limited company through which an investor (or multiple investors) can purchase rental properties.

      Many investors decide to set up a buy-to-let company for tax efficiency purposes. They also receive rental income differentially from standard buy-to-let investors, enabling them to either pay themselves a salary from the company or convert the rental income into dividends.

      Read More: Discover the full costs of buy-to-let in 2024 with our updated insights!

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      Rising Rates Spur Investors to Shelter Properties in Limited Companies

      According to the report by Hamptons, these limited companies currently own a total of 615,077 properties across England and Wales, marking an 82% increase over the last seven years.

      Over the first half of 2023, the number of new buy-to-let companies was around 2% lower than the same period in 2022 (following the September 2022 Mini-Budget).

      The second half of the year, however, saw this number skyrocket to around 9% due to higher mortgage rates.

      Data also revealed that the total of outstanding buy-to-let mortgages dropped by 3% over the last 12 months, but mortgages on properties owned by limited companies increased by 10% over the same time.

      Aneisha Beveridge, head of research at Hamptons, said: “Despite last year’s slowing sales market, there was no let-up in landlords rushing to incorporate. Rather, the record number of companies set up to hold buy-to-let homes suggests a long-term commitment from landlords – particularly given the upfront costs associated with incorporating.

      “The growth has been driven mostly by existing landlords moving properties into a corporate structure to shelter themselves from higher interest rates. Meanwhile, the number of new landlords setting up shop has remained relatively muted.

      She added: “For as long as landlords continue rolling off cheap fixed-term mortgages onto rates that are twice or triple what they were paying, the number of homes being put into a corporate structure will remain high. The number of buy-to-let incorporations each year is likely to continue running in the region of 40,000 to 50,000 for the foreseeable future.”

      Further Reading: Take a look at our UK interest rates chart for the latest figures, as well as our guide to buying property as a company for more information!

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      Buy-to-Let Companies: Regional Breakdown

      Scotland saw the highest increase in new buy-to-let companies being formed, with an 8.4% increase year-on-year.

      The South West and North East were the only two regions to register any drops, seeing falls of -2.1% and -0.5% respectively.

      The North West saw the second-highest number (5.3%).

      Change in new buy-to-let companies between 2022 and 2023
      Scotland8.40%
      North West5.30%
      Yorkshire and The Humber5.00%
      South East4.40%
      West Midlands 3.90%
      East Midlands3.40%
      Northern Ireland3.40%
      London2.60%
      East2.50%
      Wales1.30%
      North East-0.50%
      South West-2.10%

      (Source: Companies House & Hamptons)

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        Record Rental Growth Expected to Continue in 2024

        In the same report, Hamptons states that 2023 was also a record-breaking year for UK rental growth.

        The average rental costs for newly let properties rose by 10.2% year-on-year in December 2023, beating out 2022’s average of 7.7%, becoming the strongest annual growth since 2014.

        London saw the highest growth, with averages of 15.2% in Inner London and 10.5% in Outer London.

        Below that, the East of England and the North were the next highest, seeing rises of 13.3% and 10.1% respectively.

        This overall increase saw the average rent for new homes rise by an average of £124, equating to an extra £1,488 each year in terms of rental yield.

        At the moment, the average rent stands at £1,268, as per Homelet’s Rental Index. According to Hamptons, however, this trend is set to continue well into 2024.

        Beveridge continued: “Rental growth has been more persistent than wider inflation, predominantly due to the scale of the costs faced by most landlords as a result of higher interest rates. Slightly lower mortgage rates in 2024 should alleviate some of these pressures and take some of the heat out of the rental and property investment market, but tenants will probably continue facing bigger rent increases than they did pre-Covid.”

        Stay up-to-date with the latest UK rental market developments! Some of our recent guides include:

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        Author

        Reece Pape

        Reece Pape is a property writer at RWinvest. Reece is passionate about keeping property investors updated on must-have information and housing market news, utilising the latest property market statistics and data.

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