Limited Company Buy to Let Mortgage Guide
Buying Investment Property Through a Limited Company
Buying rental property through a limited company has become an important consideration for many UK property investors.
Instead of purchasing the property personally, the property is purchased and owned by a company. The mortgage is therefore taken out by the company rather than by you personally.
That may sound relatively straightforward, but Limited Company Buy to Let mortgages work differently from standard residential mortgages and can also differ from Buy to Let borrowing in an individual's personal name.
The company structure, directors and shareholders, rental income, property, deposit and applicants' wider circumstances can all form part of a lender's assessment.
This guide explains some of the key mortgage considerations.
It does not provide tax, accounting or legal advice. Whether purchasing through a limited company is appropriate for you should be discussed with appropriately qualified tax and legal professionals alongside consideration of the mortgage options.
What Is a Limited Company Buy to Let Mortgage?
A Limited Company Buy to Let mortgage is a mortgage used by a company to purchase or refinance residential property that will normally be rented to tenants.
The borrower shown on the mortgage is the limited company.
However, that does not mean lenders ignore the individuals behind the company.
Lenders will commonly consider the directors and shareholders involved with the business, and personal guarantees may be required.
The underwriting can therefore involve both the company purchasing the property and the people behind that company.
What Is an SPV?
One term you are likely to encounter when researching Limited Company Buy to Let is SPV, meaning Special Purpose Vehicle.
In Buy to Let lending, an SPV is generally a limited company established for a specific purpose, such as holding and letting property.
Some lenders prefer companies whose activities are focused specifically on property investment rather than companies conducting an unrelated trading business.
The company's activities and structure can therefore matter when looking for a mortgage.
This is one reason it can be helpful to consider the mortgage requirements before establishing or changing a company structure, rather than assuming every lender will accept the same arrangement.
Limited Company Buy to Let vs Personal Buy to Let
The fundamental purpose may be similar: purchasing a property to let to tenants.
The ownership is different.
With a personal Buy to Let, you own the property personally.
With Limited Company Buy to Let, the company owns the property.
That distinction can affect taxation, accounting, legal ownership, mortgage availability, costs and how money is ultimately extracted from the company.
There is not a universal answer that says one structure is better than the other.
A structure that works well for one landlord may be inappropriate for another.
Mortgage advice can help you understand the financing implications, while an accountant or tax adviser can help you understand the tax implications.
Those two conversations should complement each other.
Why Do Landlords Consider Limited Company Buy to Let?
There are several reasons a property investor might consider purchasing through a company.
These can include building a property portfolio within a company, separating property investment activity from personal ownership, business and succession planning, retaining profits within a company for future investment and potential differences in taxation.
However, these potential considerations should not be interpreted as meaning a limited company is automatically more tax-efficient.
Tax treatment depends on individual circumstances and can change.
You should obtain appropriate professional tax advice before deciding how to structure a property purchase.
Can a New Limited Company Get a Buy to Let Mortgage?
Potentially, yes.
A company does not necessarily need years of trading history before it can be considered for a Buy to Let mortgage.
Some lenders may consider newly incorporated SPVs.
The lender can instead place significant emphasis on factors such as the directors, shareholders, applicants' experience, personal credit histories, deposit, property, expected rental income and the overall transaction.
Criteria vary considerably between lenders.
Being a newly formed company therefore does not automatically mean a mortgage is unavailable, but it can influence which lenders are appropriate.
Do I Need to Be an Experienced Landlord?
Not necessarily.
Some lenders will consider applicants buying their first rental property through a limited company, while others may prefer or require previous landlord experience for particular transactions or property types.
A straightforward single-let property may also be assessed differently from a more specialist investment such as an HMO or complex multi-unit property.
Your experience is therefore one part of the wider lending assessment.
How Much Deposit Is Needed?
Limited Company Buy to Let mortgages typically require a meaningful deposit.
The exact amount depends on the lender, property, rental assessment, applicant profile and mortgage product available at the time.
A larger deposit means a lower loan-to-value, commonly referred to as LTV.
For example, if a property were worth £200,000 and the mortgage were £150,000, the mortgage would represent 75% of the property's value.
The remaining purchase price would need to be funded from the buyer's deposit, before allowing for purchase costs and other expenses.
Lower LTV borrowing can sometimes provide access to a broader range of lending options, although this is not guaranteed.
How Do Lenders Assess Affordability?
Buy to Let affordability works differently from a normal residential mortgage.
For many Buy to Let applications, expected rental income is an important part of the assessment.
Lenders may apply an Interest Coverage Ratio, often referred to as ICR, or another form of rental stress calculation.
In simple terms, the lender assesses whether the expected rent provides sufficient coverage against a calculated or stressed mortgage payment.
Different lenders can use different stress rates, coverage ratios, rental calculations, approaches to applicant income and criteria for different borrower structures.
This means two lenders can assess exactly the same property and potentially reach different lending figures.
Your personal income may also remain relevant depending on the lender and circumstances.
How Is the Rent Confirmed?
The lender will normally need an assessment of the property's expected rental value.
As part of the mortgage valuation, a valuer may provide an opinion of the property's market rent.
The lender can then use that figure when determining whether the property satisfies its rental affordability requirements.
The rent advertised by an estate or letting agent is not necessarily the figure a lender will ultimately use.
Will the Directors Need to Give Personal Guarantees?
Personal guarantees are common within Limited Company Buy to Let lending.
A lender may require directors or other relevant individuals to personally guarantee the company's mortgage obligations.
This is important because operating through a limited company should not be interpreted as meaning the individuals behind the company necessarily have no personal exposure to the mortgage.
The exact guarantee requirements vary between lenders and transactions.
You should understand any guarantee before entering into the mortgage and obtain independent legal advice where appropriate.
What Do Lenders Look at Personally?
Although the company is the borrower, lenders may still investigate the people behind it.
This can include identity, residential history, credit history, income, employment or self-employment, existing properties, existing mortgages, landlord experience, financial commitments and other companies or business interests.
The company structure does not remove the need for individual underwriting.
Does Personal Credit History Matter?
Yes, it can.
Directors and other relevant parties may be credit checked as part of the application.
Issues such as missed payments, defaults, County Court Judgments, high levels of unsecured borrowing or recent adverse credit can influence which lenders may consider the application.
Adverse credit does not necessarily mean a Limited Company Buy to Let mortgage is impossible, but the circumstances, amount, age and status of the credit issue can matter.
What Documents Might Be Required?
Requirements vary between lenders, but you may be asked for documents and information relating to both the company and the individuals behind it.
These can include proof of identity, proof of address, personal bank statements, evidence of deposit, company details, director and shareholder information, existing portfolio details, mortgage statements, rental information, accounts where applicable and information about the property being purchased.
The lender may request additional information depending on the transaction.
Preparing documentation early can make the application process more efficient.
Where Can the Deposit Come From?
The source of the deposit needs to be established.
Depending on the lender and circumstances, funding might come from sources such as personal savings or funds introduced into the company.
More complex sources of deposit can require additional evidence and lender consideration.
Your accountant should also advise on the appropriate accounting and tax treatment when personal funds are introduced into a company.
The important point from a mortgage perspective is that you should be able to demonstrate where the money has come from.
Can I Transfer a Property I Already Own Into a Limited Company?
This is more complex than simply changing the name on an existing mortgage.
A limited company is legally separate from you personally.
Transferring property from personal ownership to a company can therefore involve a property transaction, new finance, legal work and potentially significant tax consequences.
If you are considering this, it is sensible to speak to a mortgage adviser, solicitor and appropriately qualified tax adviser or accountant before proceeding.
Do not assume that because you already own the property, transferring it into your company will be straightforward or financially beneficial.
Can a Limited Company Remortgage a Buy to Let Property?
Potentially, subject to lender criteria.
A Limited Company Buy to Let property may be refinanced for reasons such as replacing an existing mortgage, reviewing a mortgage approaching the end of its deal, changing lender, raising capital, restructuring borrowing or supporting further property investment.
Capital raising will normally be subject to lender criteria, property value, rental affordability and the stated purpose of the funds.
Existing Early Repayment Charges should also be considered before replacing a mortgage.
Can the Company Own More Than One Property?
Yes.
A company can potentially hold multiple investment properties.
As the portfolio grows, however, underwriting can become more detailed.
A lender may want information about the wider portfolio, including property values, mortgage balances, monthly rents, mortgage payments, ownership structures and overall portfolio performance.
This becomes particularly relevant for portfolio landlords.
Can I Buy an HMO Through a Limited Company?
Potentially.
However, HMO lending is a specialist area and can involve additional considerations around property configuration, licensing, number of occupants, tenancy arrangements, landlord experience, valuation methodology and lender criteria.
A standard Limited Company Buy to Let lender may not necessarily accept an HMO.
Specialist mortgage advice can therefore become particularly important where the proposed property does not fit a conventional single-let arrangement.
What About Holiday Lets?
Holiday-let lending also differs from conventional Buy to Let.
The expected income pattern, occupancy, property location and intended use can affect lender appetite.
A property intended for short-term holiday accommodation should therefore be considered against lenders that accept that particular use rather than assuming a conventional Buy to Let mortgage will be suitable.
Are Limited Company Buy to Let Mortgage Rates Higher?
Rates and product pricing can differ between personal and Limited Company Buy to Let lending.
It is also important to look beyond the headline interest rate.
The overall mortgage can involve the interest rate, product or arrangement fee, valuation costs, legal costs, adviser costs, Early Repayment Charges, mortgage term and repayment structure.
A mortgage with the lowest advertised rate is not necessarily the most appropriate or lowest-cost option overall.
Interest-Only or Repayment?
Buy to Let mortgages may be available on an interest-only or capital-and-interest repayment basis, depending on lender criteria and the product.
With interest-only, monthly payments generally cover the mortgage interest rather than reducing the original capital balance.
The original mortgage capital therefore remains to be repaid at the end of the term.
With a repayment mortgage, monthly payments include both interest and capital, meaning the balance should reduce over the mortgage term if payments are maintained as required.
The appropriate structure depends on the investment strategy, cash flow and available options.
Should I Set Up a Company Before Speaking to a Mortgage Adviser?
If the company does not already exist, it can be useful to understand the lending requirements before finalising the structure.
Different lenders can have different requirements concerning company type, trading activity, directors, shareholders, ownership percentages and previous company activity.
At the same time, a mortgage adviser should not decide your tax structure for you.
Ideally, your mortgage adviser and accountant should each advise within their respective areas.
Your accountant can help determine whether company ownership is appropriate from a tax and accounting perspective.
Your mortgage adviser can establish how the proposed structure affects your mortgage options.
A Limited Company Isn't Automatically the Right Answer
One of the most important points to understand is that Limited Company Buy to Let should not be treated as the default structure for every landlord.
There can be advantages and disadvantages to different ownership structures.
Considerations can include mortgage availability, mortgage pricing, taxation, accounting costs, administration, extracting money from the company, future purchases, selling property, estate planning and longer-term investment objectives.
The cheapest mortgage structure and the most tax-efficient ownership structure are not necessarily the same thing.
Professional advice should therefore be considered before committing to a structure.
The Limited Company Buy to Let Application Process
Although every transaction is different, a typical journey may involve several stages.
1. Discuss Your Objectives
The starting point is understanding what you are purchasing, the proposed ownership structure, available deposit, expected rental income and your wider circumstances.
2. Review the Company Structure
The directors, shareholders and company activity relevant to potential lenders can then be established.
3. Assess Affordability
Expected rental income, property value, LTV and lender-specific affordability requirements can be considered.
4. Research Lenders and Products
Potential lenders can then be assessed against the company structure, applicants and property.
5. Agreement in Principle Where Appropriate
Depending on the lender and transaction, an initial lending decision may be obtained before proceeding to a full application.
6. Full Mortgage Application
The mortgage application and supporting documentation are submitted to the lender.
7. Property Valuation
The lender arranges the appropriate valuation of the property.
8. Underwriting
The lender assesses the company, applicants, property, rental position and supporting documentation.
9. Mortgage Offer
If the lender is satisfied with the application, a formal mortgage offer may be issued.
10. Legal Work and Completion
Your solicitor completes the necessary legal work before the purchase or remortgage completes.
Limited Company Buy to Let Checklist
Before looking for finance, it can help to have a clear understanding of:
the proposed purchase price;
available deposit;
source of deposit;
expected monthly rent;
company structure;
directors and shareholders;
personal income;
existing properties and mortgages;
landlord experience;
credit history;
property type; and
whether the property will be a standard rental, HMO, holiday let or another specialist arrangement.
The more complete the information available at the beginning, the easier it can be to identify lenders whose criteria may fit the transaction.
Speak to Cambs Ely Mortgages About Limited Company Buy to Let
Whether you're considering your first Limited Company Buy to Let, expanding an existing property portfolio or reviewing finance held within an existing company, we can discuss your circumstances and help you understand the mortgage options available.
Cambs Ely Mortgages provides Buy to Let and property finance advice to landlords and property investors in Ely, Cambridge, Cambridgeshire and across England, with remote appointments available.
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Important Information
The information contained in this guide is intended for general educational purposes and does not constitute personalised mortgage, financial, legal, accounting or tax advice.
Limited Company Buy to Let mortgage availability, interest rates, rental affordability requirements, loan-to-value limits and lender criteria depend on individual circumstances, company structure, the property and the relevant lender.
Property investment involves risk. Rental income and property values are not guaranteed.
The tax treatment of property investment depends on individual circumstances and may change. You should obtain appropriate professional tax and legal advice before deciding whether to purchase or hold property through a limited company.
Your property may be repossessed if you do not keep up repayments on your mortgage.
The Financial Conduct Authority does not regulate some forms of Buy to Let mortgage.