Landlords set up a record number of buy-to-let companies last year to shelter themselves from higher mortgage rates, data from Hamptons shows.  

The estate agent says 50,004 limited firms were formed in 2023, beating the previous high of 48,520 set the year before.  

This comes as the average rent on a newly let UK property rose 10.2% year-on-year in December, marking the strongest end-of-year growth since Hamptons began tracking this measure in 2014. It passes the previous full-year rental growth high of 7.7% set in December 2022.  

BTL companies now own a total of 615,077 properties in the UK, an 82% jump since the end of 2016, when tax changes were announced, making limited companies a more profitable way to hold BTL properties for some landlords.  

However, the total number of outstanding BTL mortgages fell 3% over the last 12 months, although mortgages on properties held in a limited company lifted 10% over the same period.  

The survey says: “2023 was a year of two halves. In the first half of the year following the aftermath of the mini-Budget, the number of new BTL 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 BTL homes picked up in the second half of 2023 to run at 9% above 2022 levels.”  

Scotland posted the largest pick-up, with an 8.4% year-on-year uplift in the number of new companies established, a larger increase than any other region of the UK.  

Also, a record 58% of limited company BTL 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 BTLs, particularly in the North of England,” the report points out.  

Average UK monthly rents hit £1,340, in the year to December, up by £124 a month than a year ago, or an extra £1,488 over 12 months.  

The study points out that rents have risen faster than inflation for the last nine months. It adds that Between March and November, rental growth outpaced inflation by an average of 3.5% each month.   

It says: “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 (of 2.6%) over the next few years.”    

The estate agent forecasts that rents on newly let UK properties will rise by 7% this year, followed by 5% in 2025 and 5% in 2026.  

Hamptons head of research Aneisha Beveridge says: “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 BTL 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 BTL incorporations each year is likely to continue running in the region of 40,000 to 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.  

Beveridge adds: “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.”