Limited Company Buy-to-Let Mortgage Advice
You can purchase and manage your Buy-to-Let property either with an individual mortgage or a limited company mortgage. The decision will affect the revenue you can expect, so picking the right type of Buy-to-Let mortgage will be down to your individual circumstances.
There have been recent changes to the rules around tax relief on mortgage interest on Buy-to-Let properties. There has also been an increase in Stamp Duty on second homes. Therefore, many landlords have concluded that running a limited company Buy-to-Let business could be the better financial option.
Get in touch for a free, no-obligation initial discussion about your mortgage situation.
- What is a limited company Buy-to-Let mortgage?
- Try our Buy-to-Let mortgage calculator
- Read our Buy-to-Let guide
- Why use a limited company for your Buy-to-Let mortgage?
- Lenders criteria: can I get a limited company Buy-to-Let mortgage?
- What is a Special Purpose Vehicle (SPV) for Buy-to-Let?
- Limited company Buy-to-Let mortgage lenders
- Advantages vs. disadvantages
- Limited Company Buy-to-Let FAQs
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What is a limited company Buy-to-Let mortgage?
This is where an individual will take out a mortgage through a limited company, rather than in their own name.
In 2016, there were changes to the tax relief on Buy-to-Let mortgages and Stamp Duty. This made growing a property portfolio generally more expensive for most. So, many instead considered registering their Buy-to-Let business as a limited company.
Using a limited company offers tax relief and efficient income structuring. A limited company Buy-to-Let mortgage is almost identical to the conventional Buy-to-Let mortgage, but the important difference lies in how they assess your suitability for the loan. Some mainstream lenders typically shy away from lending to a limited company as the perceived risk is higher.
However, as more landlords begin to structure their business this way, more and more specialist lenders appear. These lenders take a broader view and consider many aspects of your circumstances. They’ll consider things such as personal financial history and income to make a realistic assessment.
Your Buy-to-Let Situation
Why you would like a Buy to Let mortgage is unique to you. We approach mortgages for your individual needs.
What types of Buy-to-Let mortgages are there?
There are a variety of things to consider when looking into a Buy to Let mortgage.
Contact us
The best way to find out if you qualify for a buy to let mortgage is to speak to a mortgage advisor.
Why use a limited company for your Buy-to-Let mortgage?
You don’t need a portfolio of properties to benefit from this type of mortgage. Any income from your property goes into the company and you will pay corporation tax on the profits made.
If you can leave all the profits in the company, corporation tax will be the only tax you pay on the income which can represent a significant saving compared to the rental revenue being viewed as personal income.
It is much easier now than in previous years, due to the increased demand for this type of mortgage. In turn, a range of lenders have now increased their offerings and what products they have available.
As a specialist mortgage broker ourselves, with many years of experience dealing with niche-market products,, we know exactly which lender will be able to offer you the right deal for your circumstances.
This can be crucial to ensure you maximise your rental profits and that your business runs as smoothly as possible.
Lenders criteria: can I get a limited company Buy-to-Let mortgage?
Yes – anyone can use a limited company to purchase a Buy-to-Let property. Although there are obstacles; one being the criteria stipulated by each lender, the fact that it’s a specialist type of mortgage makes the number of options open to you limited.
When applying as a limited company, the process is similar to that of a standard Buy-to-Let.
The lender’s main focus will be the anticipated rental income, as well as the property itself and then make an offer of typically between 75%–85% of the property’s value.
However, there are some differences when applying through a limited company:
The first is that you will have to set up your limited company with a specific Standard Industrial Classification (SIC) code. This ensures that the company can only perform the activities of buying and renting property, no other types of business.
The codes applied will be:
- 68100: Buying and selling own real estate
- 68209: Other letting and operating of own or leased real estate
- 68320: Management of real estate on a fee or contract basis
Lenders will also assess the financial history and income of all the directors’ or shareholders’ part of the business. They will typically require at least one of the directors to have a consistent income that can support the mortgage if needed.
To do so they will likely require things like bank statements and payslips to ensure an underlying level of affordability, especially if the rental income was to fall short of required coverage ratios.
What is a Special Purpose Vehicle (SPV) for Buy-to-Let?
It’s a limited company set up for the sole purpose of buying and administering Buy-to-Let properties. In effect, a limited company with restricted trading. An SPV is a way for landlords to ensure their income is as tax efficient as possible.
It’s possible for anyone to set up as there are no real barriers. However, you should ask yourself: would an SPV be the most suitable strategy for your individual situation?
A conversation with one of our specialist advisors would be able to shed light on the best route for you. However, you should also consult your accountant and possibly obtain legal advice.
As long as your new SPV is established with the correct SIC code, then mortgage lenders should find it suitable to consider for a mortgage application.
During the actual mortgage application, the company director(s) will be subject to the lender’s credit scoring test. This is because your SPV is a new company and will have no credit history of its own. The director(s) will also need to show proof of private income to establish an underlying level of affordability.
As with any other limited company, you can draw a nominal income from your SPV. This would be declared for personal income tax reasons and then you would retain the rest of the profits within your SPV. This can be used for property maintenance, renovations, and possibly reinvested in expanding your portfolio.
If your limited company starts to receive income from other sources, then it will be considered a trading company.
It’s worth noting that many mortgage lenders will only be willing to extend a Buy-to-Let mortgage to an SPV. Introducing other business interests, income streams, and channels for possible expense into your company could be perceived as higher risk.
- Your SPV does not have to be a new entity, you can change an existing trading company into an SPV. This is done by stating that it will now only be used for your Buy-to-Let property business.
The other option is to create a new company especially for this purpose with no prior trading record. Some lenders will prefer the latter, as it dispels any potential risks, that the company may carry from any previous trading activity.
The lender’s assessment criteria to obtain a Buy-to-Let mortgage will vary from one lender to the next. Many will take the director’s personal financial history into consideration and require the director to personally guarantee the loan.
You might think the process of setting up an SPV would be a bit of a rigmarole, but it is surprisingly straightforward and inexpensive. It’s possible to register your company at Companies House online for a cost of only £50*[1].
Although you will need to remember that if you want to trade as a Buy-to-Let business and obtain a mortgage under this structure, your company will need to get the appropriate SIC code.
*Price correct at the time of writing – November 2024
Limited company Buy-to-Let mortgage lenders
There is not a best limited company Buy-to-Let mortgage lender to apply to. This is because the best deal for you will be based on your individual circumstances. Therefore, what suits one limited company’s situation may not entirely suit the next.
In turn, working with an expert broker who knows the market can prove invaluable. They will be able to use their knowledge to pair you with the most suitable product that ensures your profits are maximised.
On top of this, many of these lenders tend to operate in a very niche area of the industry and they don’t make themselves available directly to the public. Therefore, they are only accessible through a broker or advisor.
The good news is the number of lenders is growing, as more people recognise this as a way for landlords to structure their business.
Limited company Buy-to-Let rates will vary from one lender to the next. Although this is still a growing market, lenders and products are still narrower than that for personal Buy-to-Let mortgages.
Interest rates will depend on a number of things:
- the loan-to-value ratio (LTV),
- level of equity or deposit you can supply,
- and the length of any set fixed rate period.
With demand increasing and more lenders entering the market, rates will be constantly changing to respond to competition.
Our expert advisors will be able to take you through each step of the application and quickly advise you of the best lenders to suit your circumstances.
Just like any mortgage type, when applying for a mortgage through a limited company, there are a range of things you will need. These things can include, but are not limited to:
- Identification and proof of address – this is typically a driving licence and passport, which can be verified by something like a utility or council tax bill from the past 3 months.
- Proof of incorporation for the limited company from HMRC.
- Bank statements and loan or credit card statements from the last 3 to 6 months, from both the directors of the company and the actual business. This gives a lender an idea of spending habits to help determine your borrowing. Bank statements can also be used to prove your deposit amount.
- Lenders will want to see your SA302 tax calculation if you have been trading long enough, which gives them an overview of your limited company’s earnings[2].
- Personal income of the directors will also need to be verified through things like payslips and bank statements.
Advantages vs. disadvantages
- As discussed above, the main advantage is tax efficiency. Any money you draw out of the business will be viewed as personal income and taxed at the prevailing rate. Any profits left in the business can be used for refurbishments, fees, or further property acquisitions.
- As you are the company director, you choose what you do with the business profits. You can save them, pay them out through dividends, or reinvest them.
- Expanding the business is made easier. As you are more tax efficient, you may have more capital to reinvest into another Buy-to-Let property. Therefore, you could grow your portfolio quicker when compared to a standard Buy-to-Let.
- For some, it might be slightly more complicated to set up a Buy-to-Let mortgage for a limited company. However, with the right preparation, you shouldn’t need to worry.
- There are not that many Buy-to-Let mortgages for limited companies available on the current market compared to standard Buy-to-Let mortgages. Since not all lenders are happy to lend to all borrowers using this structure, this means interest rates on these products are usually higher.
- You will face additional administration costs, such as the preparation of accounts and company/corporation tax calculations for HMRC. You’ll also need to register at Companies House. There could also be legal fees and costs for annual auditing, if applicable.
Limited Company Buy-to-Let FAQs
These are the four SIC codes that relate to property letting:
- 68100: Buying and selling 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
Lenders usually vary in what they require, but generally, they would expect your Buy-to-Let limited company to be registered under 68100 or 68209.
The majority of Buy-to-Let mortgage lenders prefer you to work through a Special Purpose Vehicle (SPV) rather than a limited company that carries additional complications and potential external risks associated with business not connected to your property.
This will usually mean you have to set up a new limited company as an SPV. It will be exclusively dedicated to running your Buy-to-Let business, with the appropriate SIC code for letting property.
If you already have a limited company that you are determined to use, then a lender may accept this as long as there are no other revenue streams going through the business. However, the number of lenders that will do so is limited.
You will be pleased to know there’s no limit to the number of properties.
Running a multiple property Buy-to-Let business in this way can be beneficial for portfolio landlords who are looking for maximum tax efficiency.
Some lenders don’t need you to have already incorporated your business before getting an Agreement in Principle on a limited company. However, you are likely to be in a stronger position with your application if you have already set up your company.
It is indeed possible for you to transfer ownership of your Buy-to-Let property to your limited company. However, it does throw up a little complication and some extra costs.
To do so, you’ll need to sell your property as an individual and then buy it with the limited company, potentially exposing you personally to Capital Gains Tax on the sale and the limited company to Stamp Duty on the purchase.
You should weigh up both the pros and cons and seek professional advice before making a final decision.
References
[1] Gov.uk, Register your company (n.d.) – https://www.gov.uk/limited-company-formation/register-your-company
[2] Gov.uk, Get your SA302 tax calculation (n.d.) – https://www.gov.uk/sa302-tax-calculation
Phil Scott
Director
About the author
Phil has worked in the financial services industry since 1992, having started with a large insurance company. He went self employed in 1996 as an Independent Financial Adviser before setting up his first company, Needham Market Home Financial in 1999.
After four years, he decided to concentrate solely on mortgages and related insurances, and The Mortgage Centres was born. Since then, Phil has been influential in the opening of several new offices as the business continues to grow.
Qualifications
Financial Planning Certificate: 1,2 & 3
Year Attained: 1992
Certificate in Mortgage Advice and Practice (CEMAP)
Year Attained: 2001
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