Despite a sharp fall in the number of homes bought by landlords in 2023, the number of limited companies set up to hold buy-to-let properties continued to rise.  Last year a record 50,004 limited buy-to-let companies were set up across the UK surpassing 2022’s previous record (48,540) by 3%.

According to Hamptons, which provided the data, 2023 was a year of two halves. In H1 following the aftermath of the mini-budget, the number of new buy-to-let incorporations ran at around 2% below the same period in 2022.  However, as more investors began to face higher mortgage rates, the number of limited companies set up to hold buy-to-let homes picked up in the second half of 2023 to run at 9% above 2022 levels.

Scotland recorded the largest pick-up, with an 8.4% year-on-year uplift in the number of new companies set up, a larger increase than any other region of the UK. This primarily reflects the bigger difference here in tax rates paid by individual landlords and limited companies.

The South West and North East were the only two regions of the UK to record a small fall in the number of new limited companies set up, although in both regions the number of homes owned in a corporate structure continued to rise.  A record 58% of limited company buy-to-lets in the North East were held in a company that was set up outside the region, the highest proportion in any region.  This reflects how landlords from across the UK are targeting higher yielding buy-to-lets, particularly in the North of England.

Number of new UK limited companies set up to hold buy-to-let homes  

Source: Companies House & Hamptons           

The rising number of incorporations means that at the start of 2024 there were 345,426 active limited companies designed to hold buy-to-let property in the UK, up 11.6% from 309,643 at the beginning of 2023.  68% of current companies had been set up between 2017 and 2023 when the tax changes were phased in.

Overall, these companies own a total of 615,077 properties across England & Wales, an 82% increase from the end of 2016 when landlords who were higher rate taxpayers started to see the share of mortgage interest they could offset from their tax bill for homes in personal names reduce.  However, companies set up after 2016 still only own 38% of all buy-to-lets held in a limited company.

Of the 615,077 limited company buy-to-let properties, 458,838 (75%) have a mortgage charge against them.  The number of outstanding limited company mortgages has risen 10% over the last 12 months, despite the total number of buy-to-let mortgages falling 3% over the same period.  This also means that limited company landlords are more likely to have a mortgage than investors who own buy-to-let property in their personal name.

Most of the growth in buy-to-let incorporations over the last year has come from smaller landlords.  Over the last 12 months, there was a 21.9% increase in the number of homes held in companies with a single property.  This compares to a 3.8% increase in the number held by companies owning 20-plus homes.

Companies owning 20-plus properties were the only ones to see the number of mortgage charges increase faster than the number of homes, suggesting that these investors are leveraging up rather than reducing the debt on their portfolio.

12-month change in the number of homes and mortgages held by limited buy-to-let companies, ranked by number of homes in the company                                                                                                           

Source: Companies House, Land Registry & Hamptons

This means that limited companies set up to hold buy-to-let property now account for 24% of all properties held in any sort of limited company structure, up from 16% in 2016.  Between 2016 and the end of 2023, the total number of properties owned by all limited companies, not just those set up to hold buy-to-let property, rose by 21%.

Rental growth

2023 was a record-breaking year for rental growth.  The average rent on a newly let property in Great Britain rose 10.2% year-on-year in December, marking the strongest end of year growth since our records began in 2014 and surpassing December 2022’s previous record of 7.7% (chart 3).  This cost the average tenant who moved into a new home an average of £124 a month more in rent, equating to an extra £1,488 each year.

Rents have risen faster than inflation (CPI) for the last nine months.  Between March 2023 and November 2023 (when the latest CPI data was available), rental growth outpaced inflation by an average of 3.5% each month.  This reversed the trend seen nine months previous when inflation reached a 41-year high.  Pre-Covid, however, rents were rising at a more sustainable average of 1.1% faster than inflation each year.

While the pace of rental growth has cooled a little from its 12.0% peak in August, it hasn’t slowed as quickly as inflation and there are few signs that it’ll significantly slow any time soon.  The rise in rents predominantly reflects higher landlord costs coupled with a lack of homes available to rent, which is unlikely to change significantly in the short to medium term.

Annual change in rents on newly let properties & inflation (CPI)

Source: Hamptons & ONS

On a regional basis, tenants in the East of England faced the biggest rent hikes.  The average rent on a newly let property in the East of England hit £1,299 pcm in December, a record 13.3% or £153pcm more than 12 months ago.  Rents in Greater London, the Midlands and the North of England also saw double-digit hikes in 2023 (table 1).

Looking ahead, as mortgage rates continue their downward path, some of the upward pressure on rents should reduce.  This will predominantly occur because fewer landlords will face such steep increases in remortgaging costs as those who refinanced in 2023.

However, lower rates might also enable more renters to become homeowners, reducing demand.  Even so, rents are likely to continue rising much faster than the pre-Covid average (2.6%) over the next few years.  We’re forecasting rents on newly let properties across Great Britain to rise 7% in 2024, followed by 5% in 2025 and 5% in 2026

Rental growth on newly let properties in December 2023

Source: Hamptons

Aneisha Beveridge, head of research at Hamptons, commented: “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.

“For as long as landlords continue rolling off cheap fixed-term mortgages onto rates which 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 40,000-50,000 for the foreseeable future.  Longer term, the current tax regime could push half of all rental homes into a limited company, significantly reducing the existence of landlords who own buy-to-lets in their personal name.

“Pressures on the rental market show few signs of abating.  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 market, but tenants will probably continue facing bigger rent increases than they did pre-Covid.”

Rental prices fall in all regions across the UK with the exception of one