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How to compare limited company buy-to-let mortgage deals

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What is a buy-to-let mortgage for a limited company?

A BTL or buy-to-let mortgage for a limited company is a specialist type of mortgage for landlords who want to buy a property through a company.

Some investors decide to set up a company solely for owning properties because of the tax benefits on offer. 

These companies are specifically structured to buy, sell or let property and are known as a special purpose vehicle (SPV).

Changes to income tax relief for residential landlords brought in from 2017 increased the number of landlords using a limited company to buy and own properties. 

If you use a SPV to buy your property you will not be able to take out a standard residential or BTL mortgage and will instead need a limited company buy-to-let mortgage. 

Limited company buy-to-let mortgages are not regulated by the Financial Conduct Authority (FCA) so borrowers don’t get the same protection offered by standard residential mortgages. 

How does a buy-to-let mortgage for a limited company work?

Buy-to-let mortgages for limited companies are for landlords who own their property through a company. 

Lenders offering these mortgages will usually require the company to be a Special Purpose Vehicle (SPV) which have structures designed specifically for, and limited to, owning properties. 

As with standard mortgages, lenders have different criteria for assessing the affordability of landlords who are directors or shareholders of the company owning the property. 

Lenders will want to make sure the rental income on the property more than covers the mortgage repayment, typically at a rate of 125%. 

Underwriters will also examine the financial situation of any shareholders or directors of the company and require a minimum level of personal income to cover any void periods. 

Many buy-to-let mortgages for limited companies are offered through specialist lenders, which are able to underwrite mortgages for business in a broad range of circumstances. 

Specialist lenders are more likely to accept larger buy-to-let property portfolios owned through the limited company. High street lenders tend to cap the number of properties that a limited company can own at around three. 

Eligibility criteria

Landlords can have just one property through a limited company mortgage or can have many more. Investors who have four or more properties may find it more difficult to get a mortgage through a high street lender and usually become classed as portfolio landlords. 

Specialist lenders provide more options for portfolio landlords looking for a mortgage through a limited company. 

The loan to value (LTV) available on limited company mortgages is generally lower than standard residential mortgages. Lenders will likely require equity or a deposit of at least 20%, but investors who have a lower loan to value will have more options. Interest-only limited company mortgages will typically require a relatively low LTV of 60% or 65%. 

Company directors may need a minimum income to qualify for limited company mortgages, so that lenders can be sure that void periods will be covered. However, this is not always necessary, and some lenders may accept personal savings to act in place of minimum income. 

The age of company directors may be a factor when lenders assess applicants for limited company buy-to-let mortgages and it could be more difficult to get a loan past retirement. However, there are some mainstream lenders, such as TMW, that have no maximum age for directors as long as they are deemed to be experienced landlords and the LTV is relatively low.

Terms and fees

Two and five-year fixed rates are the most readily available limited company mortgages. 

Rates are as low as 2.49% at a loan to value (LTV) of 75% fixed for two years with both The Mortgage Works and Kent Reliance.

However, the size of fees can be quite different with The Mortgage Works charging £2,105 on a £200,000 loan on the above rate, whereas Kent Reliance will charge £5,225 on the same loan. 

What is a Special Purpose Vehicle (SPV)?

A special purpose vehicle (SPV) is a company that is used for a named function only, in this case exclusively for buying, selling and letting properties. 

Unlike a normal company that can carry out a range of functions, the SPV has a special structure designed specifically for owning properties. Many lenders restrict limited company mortgages to these kinds of  SPVs because they understand the structures and risks and know the money cannot be used to subsidise another activity. 

However, there are lenders who will consider mortgages for businesses run as a normal multi-purpose trading company but they are in the minority and usually more specialist. 

Landlords who use an SPV are typically professionals and are using the company as a tax-efficient way to buy and hold properties. Through these companies, a landlord can deduct finance costs, including mortgage interest, from their earnings to reduce their overall tax bill.

Setting up an SPV limited company online with Companies House is fairly straightforward and costs £12, though you can also ask an accountant to help if you would prefer. 

You will need to choose Standard Industry Classification (SIC) of economical activity codes for the company which confirm the nature of the trading.

Lenders will require these codes when processing a mortgage application and will usually be looking to make sure it has any of the following codes related to property investment: 

  • 68100 Buying and selling of own real estate

  • 68201 Renting and operating of Housing Association real estate

  • 68209 Other letting and operating of own or leased real estate

  • 68320 Management of real estate on a fee or contract basis

Once you have set up an SPV you need to register for corporation tax, which you can also do through Companies House, and you will also need to give HMRC your company’s registration number.

Tax and buying a property through a limited company

One of the main benefits of getting a buy-to-let company mortgage through a company is that costs associated with running the buy-to-let can be deducted from earnings to reduce the overall tax bill. 

Costs that can be deducted include insurance, repairs and, crucially, mortgage interest. 

Tax changes brought in from 2017 stopped individual landlords from deducting mortgage interest to lower income tax bills, which is why more landlords started to set up limited companies for owning properties.  

And instead of paying income tax on rent earnings, limited companies pay corporation tax on profits at a rate of 19%, which is especially beneficial if you’re a higher rate taxpayer. 

For example, a limited company landlord who has £24,000 of rental income and pays £7,000 of mortgage interest will be liable for corporation tax at a rate of 19% on £17,000 (that’s (£24,000 minus £7,000). That means a tax bill of £3,230, leaving a profit of £13,770. 

A higher-rate taxpayer landlord who has the same £24,000 of income and £7,000 of mortgage interest will be liable for income tax at a rate of 40% (£9,600). They can claim tax relief at a rate of 20% on the lowest of either the finance costs, property profits or adjusted total income – in this case, the lowest amount is the mortgage interest (£1,400). This leaves a tax bill of £8,200 and a much lower profit of £8,800.  

However, it’s not quite that straight-forward. There is a further tax that needs to be paid to draw down profits out of the company as dividends. Rates on a limited company mortgage can also be more expensive than a mainstream landlord mortgage. 

A limited company has to pay stamp duty, with the tax also due when any properties currently owned are sold or transferred to the company. Furthermore, property held by a limited company is liable for Capital Gains Tax, and there is no tax-free allowance which individuals do benefit from. 

It is a good idea to see a tax adviser to help work through the options and whether setting up an SPV is the right option for you. 

How to choose the right commercial buy-to-let mortgage for a limited company portrait

How to choose the right commercial buy-to-let mortgage for a limited company

If you're looking for a limited company buy-to-let mortgage, there are a few things to think about.

You'll need to decide the type of interest rate you want. Lenders offer both fixed- or variable-rate deals. The latter tends to be cheaper but fixing a mortgage creates certainty and control over payments. 

Fixed-rate mortgages are most commonly offered for two or five years, but some lenders will allow rates to be fixed as long as 10 years. 

The type of mortgage rate you pick will affect how much you pay and whether you are protected from future interest rate rises.

Lenders also offer different mortgage terms. A longer term means your monthly repayments are lower, whereas you pay less interest over the duration of the mortgage with a shorter term. 

Interest-only mortgages are another option for limited company landlords. Interest-only deals cost less per month than a repayment mortgage. But you'll need to save up separately to pay off your mortgage or sell your property when the mortgage ends.

Consider these options before you start comparing limited company buy-to-let mortgage rates.

Limited company buy to let FAQs

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

Overall representative example

Based on borrowing£170,000 over 25 yearsThe overall cost of comparison4.46% APRC Representative
Initial rate3.34% fixed for 2 years (24 instalments of £884.45pm)Subsequent rate (SVR)4.66% variable for the remaining 23 years (276 instalments of £944.66pm)
Lender fee£517Total amount payable£282,470.34

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