Buy-to-Let mortgages for Limited Companies
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Author: Pete Mugleston - Mortgage Expert
Updated: December 06, 2021
Purchasing a buy-to-let property through a limited company or special purpose vehicle (SPV) can be more profitable these days as the tax rules are different from personal buy-to-let investments.
If you’re interested in buying an investment property through a limited company then this is the article for you. We can help you understand how the mortgage works and importantly, what criteria you’ll need to fulfil to secure the right BTL mortgage.
The following topics are covered below...
Can you get a buy-to-let mortgage through a limited company?
The quick answer is yes, you can! While there are fewer buy to let mortgage products available for limited companies compared with what’s on offer to individuals, the good news is that thanks to growing demand for these products, more lenders are adding them to their product lines.
While it isn’t always the right mortgage for a property investor, applying for a BTL limited company mortgage can make a difference to the return on your investment – provided you choose the right mortgage deal.
Speaking with an expert about the difference between buying a property through a business or with a personal BTL mortgage can help you better understand which option would work for you. They can also advise you on where to find the best business BTL mortgage for your needs.
How to get a BTL limited company mortgage
Getting this type of mortgage isn’t hugely different to securing other types of buy-to-let mortgages.
These are the main the steps you need to take:
- Get your documents together: One thing that does differ from a personal mortgage is the amount of documents you’ll need. As well as documents proving your personal details, you’ll also need evidence for specific details relating to the LTD company. In some cases this can include certain codes the company is listed with and also two years of earnings where the company has a trading history.
- Check your credit reports: Credit checks are required by lenders on each director and are of particular importance if the company is new or doesn’t have two years of accounts. Accessing your credit reports online will show you the same information a mortgage lender will see. This means you will be able to answer any tricky questions relating to any problems that show up. You’ll also be able to start work on removing any outdated or incorrect information on them. Our dedicated credit reports hub is a handy place to easily download your reports.
- Speak to a mortgage broker: Buy-to-let limited company mortgages are available to the general public but not all the best deals are on the open market. Speaking with an advisor who has worked with clients like you will give you access to a wealth of information not easily available elsewhere. You can ask any questions and get help through the whole process, which can prove invaluable if it’s the first time applying for a limited company mortgage. By using a broker you’ll also increase your chance of securing the right mortgage for you at the first time of asking.
Through our free, broker matching service, we can pair you with an advisor who understands the limited company BTL mortgage market. They will give you all the information you need and also ensure you have access to the entire market of options. Get in touch today to get started.
What eligibility criteria do you need to meet?
Many lenders have the following requirements for limited company buy-to-let mortgages…
Where your company doesn’t have two years worth of accounts, having a good credit history and evidence of personal income can prove helpful. In addition, a personal guarantee can also support your application, where it is permitted.
Remember, the above criteria is specific to buy-to-let business mortgages and the lender you choose, and is in addition to the general eligibility criteria that comes with all mortgage applications. This means, amongst other things, you’ll still need to prove your address, your deposit and your identity.
Most lenders will ask you for at least 15% deposit for a limited company BTL mortgage. When it comes to your deposit for the investment, you must be able to prove you have it and can access it at the planned time of purchase. Evidence of the deposit will be requested by most lenders.
Where a limited company is buying the property from one of the company directors, the existing equity in the property may be acceptable as deposit, if the full share capital of the limited company is in the exact same name as the property.
It is also possible to use certain types of verified business loans to provide the deposit. This can include:
- Directors’ loans
- Intercompany loans
- Business savings
However, this can vary between lenders and also depend on specific circumstances and again, must come with the right documentation.
What are the advantages?
We’ve mentioned there are tax benefits to buying a rental property through a limited company and while this isn’t the only detail to consider, it is an important one.
If you buy an investment property through a personal BTL mortgage, the rental income is treated as your personal income. This means it is added to any other income you have from a job, which can push you up to a higher tax bracket.
Then, when it comes to filing your tax return, you are taxed at a personal tax rate, which if the addition of your rental pushes your annual earnings over £50,001 (as of the 2021/22 financial year) part of your earnings will be taxed at the higher rate of 40%.
However, if you buy and manage your BTL property or portfolio through a limited company, the benefits include listing your mortgage payments as tax deductible and a flat business tax rate of 19%. In addition to that, running costs such as paying for any repairs or ongoing maintenance can also be deducted for the tax calculations, just like they can with a personal BTL mortgage.
As well as the tax element of these types of mortgages, other advantages are that up to four company directors can be listed with all of their finances and credit history taken into account. This can be particularly helpful if you’re just beginning your property investment career or have some poor credit history against your name.
Limited company BTL mortgages can also safeguard your personal home as in most cases you won’t be forced to sell your own dwelling if the company fails or dissolves.
Another benefit to bear in mind is that your personal borrowing capacity shouldn’t be affected by the financial commitments of your limited company mortgage/s.
Potential disadvantages to consider
Very few things in life are perfect and so it is with mortgage options. The main disadvantages of limited company buy-to-let mortgages are:
- Interest rates and fees tend to be higher.
- There is less choice.
- The LTV options may be lower than personal BTL mortgages.
There will also be more questions to answer and evidence to provide for the application than for many personal BTL mortgage options. This is to help satisfy the lender and underwriters that everything is as it should be and the risk they’re taking is within their permitted parameters
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Getting a buy-to-let mortgage through an existing limited company
It is possible to secure a BTL mortgage through an existing limited company, not just newly created ones, provided it fulfils certain criteria including having one of four suitable Standard Industry Classification (SIC) codes relating to property or investment:
- 68100 (buying and selling real estate),
- 68201 (renting and operating of a housing association real estate)
- 68209 (other letting or operating of own or leased real estate)
- 68320 (management of real estate on a fee or contract basis)
However, even if you make your purchase through an existing limited company, the rules on income and assessment will be the same as they would be for a new company set up for the specific purpose of property investment. This means you will need to provide documentation of your personal income as a company director in addition to any available company accounts.
Special Purpose Vehicles (SPV)
It is also possible to create an SPV company to buy a BTL property. Indeed, this is quite a common option, particularly in recent years. When you register your SPV you must use a suitable property-related SIC code, as listed above.
The paperwork for the application is quite particular with certain details deemed essential for them to even be considered. Among them is that the names of the directors or shareholders of the SPV on the mortgage application must exactly match those listed at companies house.
However, regardless of how new or old your SPV is, the lender will always use the financial history and evidence of the company directors as the basis for their mortgage lending decision.
Switching a personal BTL mortgage across to a limited company
It’s possible to change your personal BTL mortgage to a limited company BTL mortgage. However, there may be charges involved relating to any fixed rate term you initially signed up to.
You will also be required to pay stamp duty on the sale which is calculated at the usual BTL rates. There may be capital gains charges to pay too, if the property is deemed to have made a profit.
With that in mind, the process is pretty much the same as if you’re buying a property from the open market, minus the searching and estate agency fees.
Get matched with a buy-to-let broker who specialises in limited companies today
With so much to consider with your company investment, it can be a good idea to speak with a mortgage advisor experienced in BTL limited company applications. Not only will the broker we match you with have good knowledge of this specific sub-sector to answer all of your questions, they also have access to the complete market of suitable mortgage products.
Our free-broker-matching service will give you the help you need and a greater chance of receiving a yes to your application, first time. Call 0808 189 0463 or make an enquiry with us today and we’ll connect you with a broker experienced in limited company BTL mortgages who will then contact you for a free, no obligation chat.
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About the author
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!