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Discover how limited company buy to let mortgages work, the eligibility requirements, steps involved - whether you're buying or remortgaging
What is a limited company buy to let Mortgage?
A limited company buy-to-let mortgage is a specialized loan designed for property investors who choose to purchase and manage their buy to-let properties under a limited company structure. Unlike traditional buy-to-let mortgages, where the individual is the borrower, the limited company becomes the legal owner of the property and the mortgage is in the company’s name.
What are the typical interest rates for Limited Company buy-to-let mortgages?
The interest rate on buy-to-let mortgages for Limited companies depends on the lender you choose. With the increasing popularity of this borrowing method, more lenders have entered the market, leading to competitive pricing. Some specialist lenders even offer the same rates for individuals, SPVs, and trading limited companies. However, in general, limited company rates tend to be slightly higher than those for individual borrowers.
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Areas of Expertise
Incorporating Partnerships into Limited Company
Limited Company Portfolio Refinance
House in Multiple Occupation (HMO)
Multi-Unit Freehold Block of Flats
Trading Limited Company
Unlimited Portfolio Size
Remortgage & Capital Raise
Borrow up to 80% TV
Holiday Lets
Student Lets
No Upper Age Limit
No minimum income
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How to get a limited company buy to let mortgage?
Getting a limited company buy-to-let mortgage involves similar steps to securing a standard buy-to-let mortgage, but with a few key differences:
Company Formation:
- If you don’t already have a limited company set up specifically for property investment, you’ll need to form one, typically a Special Purpose Vehicle (SPV). An SPV is a limited company designated solely for property holding and management, with its activities classified under specific SIC codes like 68100 (buying and selling of own real estate) and 68209 (other letting and operating of own or leased real estate). Establishing an SPV can streamline the mortgage process with certain lenders and may provide tax benefits, as SPVs are treated separately from your personal finances and taxed at the corporate rate. Be sure to consult with an accountant to understand the tax implications.
Property Identification and Initial Research:
- Identify the property you intend to purchase or remortgage through your limited company. The rental income potential is critical, as it will directly affect how much you can borrow. Conduct thorough market research to ensure the property has good rental yield potential. Check the local rental market for similar properties and estimate the monthly rental income. Most lenders require the projected rental income to cover at least 125-145% of the mortgage payments, so selecting a property with strong rental demand is essential to secure favorable lending terms..
Find a Lender
- Consult a Broker: Mortgage brokers specializing in limited company buy-to-let mortgages can provide expert guidance and access to a wider network of lenders. They help navigate unique requirements such as rental stress tests (where lenders assess affordability at higher interest rates) and criteria specific to limited companies, such as requiring personal guarantees from directors.
- Speak to a Bank: While you can go directly to banks, this may limit your options, as not all banks offer limited company buy-to-let mortgages, and the products available directly may not be as flexible or competitive as those accessed through brokers.
Agreement in Principle (AIP):
- Once you have selected a property and estimated its rental income, approach a lender to obtain an Agreement in Principle (AIP). An AIP is a conditional offer that provides an initial indication of the amount you may be eligible to borrow, based on your company’s credit profile, the anticipated rental income of the property, and your financial circumstances. Although non-binding, an AIP helps streamline the mortgage process by giving you confidence in your borrowing power before submitting a full application.
Submit a Full Mortgage Application:
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After securing an AIP, you’ll need to submit a complete mortgage application, which will include both personal and company financials. This includes documentation like:
- Company Financials: Annual accounts, tax returns, and bank statements for the limited company.
- Director/Shareholder Information: Personal income details, credit history, and potentially a personal guarantee if required by the lender.
- Property Details: Information about the selected property, including rental estimates and any relevant tenancy agreements.
Underwriting and Property Valuation:
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During underwriting, the lender will assess both the financial stability of the limited company and the viability of the property as a rental investment. Key steps include:
- Stress Testing: The lender may apply stress tests on the projected rental income to ensure that the mortgage repayments can be met even if interest rates rise.
- Property Valuation: A formal property valuation will be conducted by the lender to confirm the property’s market value and rental potential. This ensures the property’s income generation aligns with the lender’s risk requirements.
Formal Mortgage Offer, Legal Process, and Completion:
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If your application is successful, you’ll receive a formal mortgage offer. Here’s what happens next:
- Review the Offer: Carefully read through the mortgage offer’s terms, including interest rates, fees, and any conditions tied to the limited company structure. Ensure you understand and agree to all terms before proceeding.
- Engage a Solicitor: Work with a solicitor who specializes in property transactions to handle the legal aspects of the process, including property searches, contract review, and ensuring all legal requirements are met.
- Completion: Once all legal checks are completed and documents signed, the lender will release the funds, allowing you to complete the property purchase or remortgage.
Why choose Mortgage.One for your Buy to Let Investment Journey?
- Transparent Fee Structure: No Broker fees, we are paid by lenders. Get initial cost estimates with our calculator.
- Thousands of Options at Your Fingertips: Compare numerous rates and deals to find the best fit for you.
- Specialist Buy-to-Let Expertise: We understand the complexities of buy-to- let lending, including limited company and unique situations.
- Informed Decision-Making: Make confident choices using our buy-to-let calculators. Analyze various aspects of your mortgage.
- Proven Track Record: We’ve arranged over £100 million in buy-to-let mortgages. See our success stories.
- Established Lender Connections: Access a broad range of buy-to-let mortgage products with competitive terms designed to support your investment needs.
- Save Time & Secure Deals Faster: We streamline the mortgage process, so you can focus on your investments.
- Dedicated Mortgage Assistance: Get bespoke advice and support from mortgage advisors through every step of the process.
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A Limited Company buy-to-let mortgage allows investors to purchase or hold rental properties through a company structure, typically a Special Purpose Vehicle (SPV) set up specifically for property investment. This approach can offer certain tax advantages, as rental income generated by properties held within a limited company is subject to Corporation Tax (currently lower than higher rates of personal Income Tax), rather than personal tax rates on rental income.
Here’s a breakdown of how Limited Company buy-to-let mortgages work:
Setting Up an SPV: Most lenders require the company to be registered as an SPV (Special Purpose Vehicle), meaning its primary activity is property investment and management. Standard SIC (Standard Industrial Classification) codes for SPVs include 68100 (buying and selling of own real estate), 68209 (other letting and operating of own or leased real estate), and 68320 (management of real estate on a fee or contract basis).
Mortgage Application Process: The mortgage process is similar to personal buy-to-let applications but may require additional documentation. Lenders will assess both the company’s financial stability and the personal financial profiles of directors and shareholders, often requiring personal guarantees from them.
Deposit Requirements: Typically, Limited Company buy-to-let mortgages require a minimum deposit of 25%, similar to individual buy-to-let mortgages. However, deposit requirements may vary based on the lender’s criteria and the property’s risk profile.
Interest Rates and Fees: Mortgages for Limited Companies often have slightly higher interest rates and fees than individual buy-to-let mortgages due to the perceived risk associated with corporate structures. However, this can vary based on the lender, the company’s financial profile, and market conditions.
Tax Implications: One of the key advantages is the potential tax benefit. Rental income within a Limited Company is taxed at Corporation Tax rates rather than personal Income Tax rates, which can be advantageous for higher-rate taxpayers. However, profits withdrawn from the company as dividends are subject to personal tax rates. It’s advisable to seek tax advice to understand how this affects your individual situation.
Using a Limited Company structure for buy-to-let can be advantageous for landlords looking to scale their portfolios and optimize tax efficiencies. However, it’s important to evaluate the setup, operational, and accounting costs and to seek advice from a mortgage broker and tax advisor to ensure this approach aligns with your investment goals.
Tax Efficiency:
Limited companies are subject to Corporation Tax rather than Income Tax, so the changes in mortgage interest tax relief for individual buy-to-let landlords do not directly affect them. However, when company owners take profits out of the company, Income Tax will apply (either through salary or dividends). For many landlords, using a limited company for buy-to-let mortgages can be more tax-efficient than owning properties personally. Still, it’s crucial to seek advice from a tax professional before making any investment decisions.
Increased Borrowing Potential:
Due to regulatory guidelines requiring stricter stress tests on individual landlords, lenders often offer more generous income cover ratios (ICR) for limited company buy-to-let mortgages. This translates to potentially higher loan-to-value (LTV) ratios, allowing you to borrow more against the property’s value compared to borrowing in your own name. For instance, if two properties generate the same rental income, the one owned by a limited company could qualify for a larger loan amount, assuming all other criteria are met. Here’s a breakdown of the typical stress test rates:
- Individual landlords: Stress tested at 145% rental income coverage ratio
- Limited companies: Stress tested at 125% rental income coverage ratio
Flexibility:
Limited companies can have multiple owners, making it easier to share investment and ownership responsibilities.
Limited company buy-to-let mortgages are typically available to:
- Existing limited companies: Companies that are already established and have a proven track record in property investment.
- Special Purpose Vehicles (SPVs):Companies set up specifically for the purpose of buying, managing, and selling buy-to-let properties.
- First-Time Landlords: Limited company buy-to-let mortgages are not exclusive to experienced landlords. Even if this is your first buy-tolet property, you can purchase it through a newly formed company (SPV).
Lenders have different eligibility requirements, but our expertise allows us to identify the most suitable option based on your individual circumstances.
Start with Research and Self-Assessment:
- Calculate your borrowing capacity: Use our “How much can I borrow?” calculator to estimate how much you could potentially borrow based on rental income from the buy to let property.
- Access 100+ lenders: As a whole-of-market broker, we have access to a vast network of lenders, including those specializing in limited company buy-to-let mortgages. This ensures you’re not limited to a few options and can find the most competitive deals.
- Utilize our online comparison tool: Our comparison tool allows you to easily compare different mortgage deals based on your specific requirements, helping you quickly identify the most suitable options.
- Benefit from our experienced team: Our team has extensive experience in the buy-to-let market, including limited company structures. We can provide expert advice, guide you through the application process, and negotiate with lenders on your behalf to secure the best possible deal.
In 2015, Chancellor George Osborne announced plans to restrict mortgage interest relief to the basic rate of income tax, gradually phasing it out over four years starting from April 2017. This change significantly impacted landlords borrowing in their own name, particularly those in higher tax brackets, as they could now only claim tax relief at the basic rate of 20%, potentially reducing their profits.
If your total income, including rental income, pushes you into a higher tax bracket, you’re also affected by this restriction.
For many, this has made borrowing through a Special Purpose Vehicle (SPV) Limited Company a more appealing and tax-efficient option.
Limited company buy-to-let mortgages involve several fees and charges, both one-time and ongoing. Here’s a breakdown:
One-Time Fees:
- Arrangement Fees: Charged by the lender for setting up the mortgage, typically a percentage of the loan amount or a fixed fee
- Valuation Fees: Charged for assessing the property’s value, essential for the lender to determine the loan amount.
- Legal Fees: Cover the cost of legal services for the mortgage and property purchase.
- Broker Fees (if applicable): If you use a mortgage broker, they’ll charge a fee for their services. At Mortgage.One, we don’t charge our client broker fee as we are paid by the lender.
Ongoing Fees:
- Mortgage Interest: The regular payments to the lender, calculated based on the interest rate and loan amount.
- Company Costs: Setting up and maintaining a limited company incurs ongoing costs like accounting fees, annual company accounts and returns.
- Property Costs: These include insurance, maintenance, repairs, and any service charges or ground rent.
Other Costs (Potentially):
- Stamp Duty Land Tax (SDLT): Payable on the purchase price of the property. A 5% surcharge applies to additional residential properties, regardless of whether the purchase is made by an individual or a limited company. Use our buy-to-let stamp duty calculator for accurate calculations.
- Early Repayment Charges (ERCs): Incurred if you repay the mortgage early, typically during a fixed-rate period.
It’s crucial to factor in all these costs when considering a limited company buy-to-let mortgage. Carefully assess the potential rental income and ensure it covers these expenses, as well as generating a profit for your investment.
Tip: Compare fees and charges from different lenders before making a decision. A mortgage broker can help you understand the costs involved and find the most cost-effective option for your needs.
Company Financials Scrutiny:
Lenders thoroughly assess the limited company’s financial health, including its accounts, cash flow, and business plan (if applicable). This is crucial to gauge the company’s ability to repay the mortgage and manage the property investment.
Personal Guarantees:
Most lenders require personal guarantees from the company’s directors and/or shareholders, making them personally liable if the company defaults. This necessitates a thorough assessment of their personal finances, including income, assets, and liabilities.
Stress Testing:
Lenders apply stress tests to assess whether the rental income can cover mortgage payments even with interest rate fluctuations or vacancy periods. The stress test for limited companies is typically 125% (rental income should cover 125% of the mortgage interest), lower than the 145% applied to individual borrowers.
Experience and Expertise:
Lenders may assess the directors’ experience and expertise in property management, particularly for multi-let properties like HMOs, student lets, or short-term lets like holiday lets and Airbnb, which demand more hands-on involvement.
Portfolio Landlords:
For companies owning four or more buy-to-let properties, lenders evaluate overall portfolio performance, including rental income, vacancy rates, and expenses to assess financial stability and risk.
Legal Structure:
Lenders review the company’s legal structure and documentation for compliance. Some lenders might not consider SPVs owned by a holding company instead of individual shareholders.
Limited company buy-to-let mortgages come in various types, similar to individual buy-to-let mortgages:
Fixed-Rate Mortgages
The interest rate is fixed for a set period, providing certainty about your monthly payments.
Variable-Rate Mortgages
The interest rate fluctuates based on the lender’s standard variable rate or a tracker rate, which follows the Bank of England base rate.
Discounted rate mortgages:
The interest rate is discounted from the lender’s standard variable rate for a set period.
Tracker mortgages:
The interest rate tracks the Bank of England base rate plus a margin set by the lender.
Choosing the right type of mortgage depends on your risk tolerance and your outlook on future interest rates.
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