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There are specialist types of buy-to-let mortgages for landlords who want to purchase or hold their property in a limited company, but is this an option for you? What criteria will you need to meet, how do you compare rates, and where can you get professional advice about this? Read on to find out.
Can you take out a buy-to-let mortgage through a limited company?
Yes, but you will need to apply for your buy-to-let mortgage through a lender who accepts applications from borrowers who are purchasing their property through a business. This might mean your options are largely restricted to specialist mortgage providers.
Limited company buy-to-let mortgage agreements also come with additional terms, conditions and criteria to meet compared to standard buy-to-let mortgages. For example, interest rates and deposit requirements can be higher, and there may be more underwriter scrutiny involved.
Landlords typically go down this route because there are tax benefits they can enjoy. This isn’t the only advantage, but there are potential drawbacks to consider too.
Using a specialist broker to apply for your mortgage is recommended under these circumstances, due to the added complexity and the fact that the number of approachable lenders, rates and deals could be limited without a broker’s connections.
Eligibility criteria
To take out a buy-to-let mortgage and invest in property through a limited company, the company in question would usually need to be set up as a special purpose vehicle (SPV). These are entities created specifically for buying, selling and letting out properties.
Other requirements you will need to meet to qualify for a limited company mortgage include:
- Personal guarantees: Most lenders will expect a personal guarantee from all of the directors and shareholders involved with the limited company.
- Number of directors/shareholders: Some mortgage providers have a limit on the maximum amount there can be, with four being standard.
- Rental income: The projected rental income for the property will need to be 125-145% of the monthly mortgage payments to satisfy most lenders’ affordability criteria. Some lenders will expect the company directors to have personal income of at least £25k too.
- Deposit requirements: You will need roughly 30% of the property’s value for the deposit, though some lenders may ask for less depending on the level of risk.
- Age: It can be more difficult to secure a limited company buy-to-let mortgage if any of the directors named on the agreement will be entering retirement during the term length. There are, however, specialist lenders for older borrowers who could help.
- Credit history: As limited company mortgages are unregulated, lenders can be more flexible with customers who have bad credit, but severe types of adverse such as bankruptcies, or very recent credit issues might make it more difficult to get approved.
If you’re concerned that you fall outside of this criteria, keep in mind that our brokers can access flexible lenders who may be able to help - get in touch to find out more.
How to get a limited company buy-to-let mortgage
Since limited company investment mortgages can be complex and the right lenders difficult to find, the best way to get started is to speak to a buy-to-let mortgage broker.
Their knowledge, experience and lender contacts can boost your chances of approval and increase the likelihood of you securing a favourable rate. Once you have compared buy-to-let rates and deals for free through Teito, we will refer you to a broker who specialises in limited company mortgages for bespoke advice. They will guide you through the following steps:
Setting up your limited company
You can do this on Companies House for a fee of £12. You will need to choose Standard Industry Classification (SIC) of economical activity codes to confirm your business is for property investment. Lenders will want to see that the company has any of the following codes:
- 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
You will also need to register for corporation tax with Companies House and give your company’s registration number to HM Revenue & Customs.
Applying for your mortgage
You can compare buy-to-let mortgage products through our free service. Once you have chosen a deal that fits your needs, your mortgage broker will make sure you meet the criteria for it, offer bespoke advice and help you secure an agreement in principle.
From here, your advisor will guide you through the full application process, helping you lock down the best rate you qualify for and give you a hand with the paperwork.
Choose the option that best fits your requirements below to get started:
Find a better limited company mortgage on Teito
What are the benefits of applying through a limited company?
The table below shows some of the main advantages of taking out a buy-to-let mortgage through a limited company compared to applying in your personal name:
|
Advantages |
Disadvantages |
|
You pay corporation tax instead of income tax on rental income, which could mean savings, especially if you are a higher rate tax payer |
Interest rates may be slightly higher, which means your monthly mortgage payments could be higher as a result |
|
Business expenses can be deducted |
A higher deposit might be needed |
|
Personal assets are protected in the event of debt related to your buy-to-let property (if it’s a limited liability company) |
Higher setup costs can be involved, as well as additions costs for running the company |
|
More flexibility on portfolio size since limited company mortgages usually come from specialist lenders with more lenient caps |
Tax returns can be more complex, adding time and potentially expense too |
|
Can be easier to refinance a portfolio as some lenders view companies as more creditworthy than individuals |
Lower rate taxpayers don’t always save money on their overall tax payments |
What interest rate to expect
The interest rates on buy-to-let mortgages, in general, are typically around one full percentage point higher than they are for residential mortgages. For landlords who are purchasing property through a limited company, however, they can be slightly higher than this.
The exact rate you end up with will depend on the overall level of risk the lender feels they are taking on by offering you a limited company buy-to-let mortgage.
You can increase your chances of landing a lower rate by doing the following:
- Putting down extra deposit
- Making sure your credit reports are up to date
- Clearing any debt you’re in a position to pay off
- Apply for your mortgage through a broker
Which lenders are available for limited company mortgages?
At the time of writing (June 2024), there are more than 40 mortgage lenders available for buy-to-let landlords who are purchasing their property through a limited company. The vast majority of these are specialist lenders, some of whom can only be accessed through a broker.
Below you will find examples of the available lenders and some of their criteria.
- Barclays: Offers limited company mortgages, but only to existing customers
- Bath Building Society: Will consider SPV applications from day one, but trading companies will need at least three years’ trading history
- MT Finance: Will consider lending as long as the limited company has been fully registered in England or Wales before the mortgage offer is made
- Kensington: Offers limited company mortgages at up to 80% LTV
The above is merely a snapshot of the market for example purposes. You can compare buy-to-let mortgage rates from these lenders and more for free through Teito - get started here.
How much could you borrow?
For limited company mortgages, lenders will only approve you for the amount you need to borrow if the rental income you can generate is at least 125% of the mortgage payments.
For example, if you had a £300,000 mortgage with a 5% interest rate taken over 25 years, the monthly payments would be £1,250 (interest-only), which means you would have to prove to the mortgage lender that you can generate monthly rental income of at least £1,562.50.
On top of this, some lenders will apply a stress test to that figure to make sure you would be able to keep up with your mortgage repayments if interest rates were to rise by a certain percentage. For limited companies, average stress test rates start at 5.5% (June 2024).
How much stamp duty will you need to pay?
For a buy-to-let property that you are letting to residential tenants, limited companies will pay an additional 3% surcharge on top of the standard residential rates.
The table below shows what rate of stamp duty land tax you will pay for a limited company buy-to-property based on its value:
|
Property, lease premium or transfer value |
Stamp duty land tax rate |
|
£0 to £40k |
0% |
|
£0 to £250k |
3% |
|
£250,001 to £925k |
8% |
|
£925,001 to £1.5m |
13% |
|
£1.5m and up |
15% |
These stamp duty figures were accurate at the time of writing but can change over time. Consult the UK Government's website for the latest rates
Why use Teito for your buy-to-let mortgage needs?
You can compare buy-to-let mortgage rates for free across the whole of the market through Teito. After you have made your selection, you can access advice from a broker who specialises in limited company mortgages to make sure everything goes smoothly from here.
Here are just some of the reasons buy-to-let landlords choose us:
- Exclusive buy-to-let mortgage deals are available
- Our brokers can provide bespoke advice for limited companies
- We are 5-star rated on leading review websites
- You can secure a mortgage in principle in minutes
Ready to compare buy-to-let rates and deals, and take advantage of a free, no-obligation chat with a specialist mortgage broker? Get started here!
FAQs
Yes. You can transfer a property you own in your personal name over to a limited company, but be aware that this process essentially involves selling the property to the company. The legal ownership will change and the transaction will be subject to stamp duty land tax.
Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.