Getting a buy-to-let mortgage for a limited company

Kate Berrisford
August 24, 2022

If you're interested in investing in a buy to let property, then chances are you're considering setting up a limited company to make that purchase.

There are many advantages to investing in buy to let properties, particularly when there's increasing demand for rentals and good capital growth potential.

There are also many advantages (if you plan to own real estate) in setting up a limited company - particularly for portfolio landlords. Below we look at some of these pros and cons of buying a buy to let through a limited company.

If you need finance for that purchase, then you may be looking for a limited company mortgage (specifically a buy to let mortgage for a limited company). There aren't too many high street lenders that offer these mortgages, so you may need to consult a specialist mortgage broker and look for specialist lenders that are willing to provide this type of loan.

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An overview of buy to let property investment in the UK

While no investment is without risk, the property market in the UK is expected to grow over the coming decades.

Property values have been increasing, which shows potential for long-term investment growth. And the rental market is expected to remain strong, which means that you're likely to find tenants for your buy to let (BTL) property.

Here are some useful statistics about the property market in the UK relevant for buy to let investments:

  • Expected UK house price growth: According to Statistica, the UK house price growth forecast estimates that between 2022 and 2026 there will be positive growth, settling at around 4.5% by 2026;

  • Increasing rental prices: According to Zoopla, rents have increased by 11% for newly agreed lets over the last year, and across the UK (excluding London), they are expected to rise by 4.5% during 2022. However, they also note that the rental market remains highly localised, although demand is still strong across the UK;

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What's a buy to let property?

A buy to let is a property (whether a detached home, terraced house, flat, HMO etc.) that is bought for the purpose of being rented out (leased) to tenants.  

Investors who buy these properties usually do so to make money both from capital growth over time (as long as property values increase over time), and from return on investment through monthly rental income.

These properties can be bought if you have the finances to pay the full amount upfront. Or if you need to borrow money, they can be mortgaged to finance that purchase.

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What is a buy to let mortgage?

A buy to let mortgage is an arrangement between a borrower and a mortgage lender whereby the purchaser agrees to borrow money and repay it according to specified and agreed on terms. You'll usually need to pay monthly interest instalments and then make a capital loan repayment, but various other options may be available.

You can get a buy to let mortgage in your personal capacity, or for a limited company.

It's a good idea to familiarise yourself with mortgage terminology in the UK, so you have a better understanding of the industry.

How does a buy to let mortgage differ from a residential mortgage?

Buy to let mortgages are different from residential mortgages in various ways. They usually have different eligibility criteria, require a higher minimum deposit, and are typically interest-only loans.

If you're applying for a BTL mortgage, you'll usually have to show that your expected rental yield will cover the costs of owning the property as well as the cost of your monthly mortgage payments.

And, unlike residential mortgages, most traditional buy to let mortgage lenders won't provide finance to first time buyers. There may be other specific exclusions to look out for too.

Buy to let property as an investment opportunity

Developers, investors, and anyone wanting to make money often look at purchasing property as part of their diversified investment portfolios.

Purchasing a buy to let home may be a long-term investment strategy.

Or you may want to get involved in flipping properties, where you're able to buy and sell a property at a profit relatively quickly.

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What is a limited company? (and why use one to purchase a buy to let property?)

If you're planning to invest in a buy to let property, you may want to set up a limited company first.

But you'll first need to have a good understanding of the advantages and disadvantages of this form of ownership and the additional obligations that it places on you - to decide if it's right for you.

Below we look at what a limited company is and the various forms of limited companies available. We also look at the pros and cons of purchasing a buy to let through a limited company, and at how you actually go about establishing a UK limited company.

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What is a limited company in the UK?

Essentially, a limited company is a legal form of business ownership.

Compared with contracting as a private individual, a limited company provides the owners (who are usually shareholders of the company) and directors with limited liability, as the company is a separate legal entity that contracts in its own name.

For UK companies, they need to be incorporated with Companies House and will be issued with their own company registration number.

UK companies need to comply with the provisions of the Companies Act and their own articles of association. Part of this entails submitting regular returns that are publicly available on a companies register.

There are 3 types of limited companies in the UK: private companies limited by shares, public limited companies and private companies limited by guarantee - with the former being most common.

How do I set up a limited company in the UK?

It's relatively quick, simple and affordable to register a limited company in the UK. You'll need to submit your chosen company name, together with your memorandum and articles of association to Companies House (which you can do online).

Once your application is accepted, you'll receive a certificate of incorporation and you'll then need to start complying with all the requisites of the Companies Act (such as holding meetings, issuing share certificates etc.).

What's a Special Purpose Vehicle (SPV) and when should I use one?

Quite often lenders will require that limited companies applying for BTL mortgages set up a Special Purpose Vehicle (SPV).

A SPV is a company that is created by a "parent company" specifically to own property and is done to limit financial risks. The SPV has its own finances and balance sheet, so that if it goes bankrupt, it doesn't affect the parent company.

Properties that are bought by a SPV can then be sold or transferred by selling or transferring the SPV.

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The advantages of buying a buy to let property through a limited company

It's important to assess the pros and cons of buying a property through a limited company or SPV. There are many differences between buying a property in your personal name compared with buying it through a company, which need to be carefully considered.

Below are some of the advantages of buying a BTL property through a limited company:

  • Tax efficient

If you're a property investor (whether you have a large or small portfolio), you may find the tax benefits of buying through a limited company quite attractive.

That's because when you pay corporation tax on profits (currently 19% on dividends) it's typically less than paying income tax on personal income from renting out a property. That's particularly the case if you're in a higher personal income tax bracket.

There are also some tax-free dividends you can claim for companies.

However, you should weigh up these tax benefits with the fact that you may then miss out on getting paid a salary (and your related state pension contributions etc.).

  • Reduces personal liability risks

Another key benefit of owning property in a company, and even more so if it's a SPV, is that it can minimise your personal financial risks as it's a separate legal entity.

  • Investors loans

Directors can loan the company money, which can be used towards the deposit for a buy to let mortgage. Or you could pay that amount from a parent company as an inter-company loan.

And once you draw back that loan, it's usually tax-free.

  • Claim expenses

When you own a property in your personal name, you can't claim certain expenses to offset the amount of tax you owe, but if you own a property in a limited company or SPV, then you can deduct the finance or mortgage related costs from your rental income of your buy to let.

In addition to being able to claim tax relief in this way, you may also be able to claim things like insurance fees and repair costs. This helps to minimise the total amount of tax owing.

  • Buy a property as a collective

Ltd company mortgages offer you a way of buying a property together with several other people (including relatives). And at the same time you can take advantage of limited legal liability that arises from owning property in a company.

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The disadvantages of buying a buy to let property through a limited company

While the benefits of owning a buy to let property in a limited company are numerous, it's important to be aware of the risks and drawbacks listed below:

  • Higher mortgage interest rates

Mortgage interest rates are generally higher for SPVs and limited companies than if you were to take out a personal mortgage for a buy to let.

  • Limited number of lenders to choose from 

As the eligibility criteria is stricter for buy to let mortgages (and more so for buy to let corporate mortgages), that means there are fewer lenders and mortgage deals to choose from.

That often means you'll end up paying higher interest rates and more mortgage fee costs.

  • Higher fees and more complex administration

You may end up paying more on legal costs and administration when it comes to company buy to let mortgages (which are a bit more complex than personal mortgages) and managing your limited company.

  • Personal guarantee may be required

Lenders sometimes require personal guarantees from the directors of SPVs when taking out a BTL mortgage.

That means that directors may then be personally liable to cover the bond repayments, even if the SPV or limited company is bankrupt or dissolved.

  • No CGT allowance when you sell

When you sell a property that's owned by a SPV, there isn't the same capital gains tax (CGT) allowance that you get if you sell in your personal capacity.

That means you may end up paying more tax on your profits when you sell, than you would if you owned it in your personal capacity. But that all depends on a range of personal factors.

  • Dividend taxes

If you pay all the profits from renting out a property owned by a SPV or limited company to the shareholders, then you might need to pay dividend tax on those amounts. Those dividend tax rates are paid on a sliding scale and can be quite high.

  • Accounting and legal compliance

There are also a range of accounting and legal compliance requirements that can be onerous for limited companies.

This includes needing to file annual company tax returns, registering for PAYE if the company pays any salaries, and registering for VAT (if applicable).

  • Stamp duty

You'll also need to pay Stamp Duty Land Tax (SDLT) when you purchase a property through a company. And what's more - you'll need to pay the additional 3% second home surcharge on properties valued over £40,000.

  • Lack of legal protection for your mortgage

Most limited company buy to let mortgages aren't regulated by the Financial Conduct Authority (FCA). That means that you won't get the same protection that you would if you took out a residential mortgage.

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How to get a limited company buy to let mortgage: 8 steps

Here are some easy steps to follow when it comes to getting a buy to let mortgage for a limited company.

  1. Find the perfect buy to let property

The first step may sound simple. But there's an art when it comes to sourcing a suitable and profitable buy to let property in the UK.

This can also be a time-consuming exercise, particularly if you're using lots of different tools and manually searching for the best buy to let opportunities across the UK.

Pivro's property sourcing software can simplify this process, while providing a powerful array of data to make an informed decision about properties expected to have the best return on investment (ROI).

Pivro helps you source the best buy to let properties, whatever your strategy - in an instant.

Because Pivro's property database platform aggregates real-time data from a variety of sources, you can access all available property data on one easy-to-use platform.

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  1. Figure out how much deposit you have and your budget

It's important to assess whether you have the required minimum deposit, for buy to let properties that's typically higher than for residential mortgages.

And it's imperative that you draw up a budget to calculate your expected income and expenses related to your buy to let investment. This can help you figure out whether you've found a viable investment opportunity or not.

  1. Research mortgage options and assess your eligibility

Next, you should research the various buy to let mortgage lenders and deals for limited companies.

Once you've identified several, you'll need to assess whether you qualify in terms of their eligibility criteria and specific exclusions.

  1. Find a mortgage deal and lender

Once you've identified several options for limited company mortgages, you should start thinking about whether you'd prefer a fixed or variable mortgage and what mortgage term would suit you best.

  1. Get professional advice: specialist mortgage advisors and brokers

It's important to get professional advice from a qualified and registered mortgage broker or advisor. Getting a mortgage is a big decision with serious financial implications after all.

It's a good idea to get advice from the time you start looking for a mortgage. Advisors can help you identify mortgage options based on your personal financial history, personal circumstances and needs.

  1. Compare buy to let mortgage offers

Once you've narrowed down some mortgage options, you'll want to compare the deals that you've identified.

There are various online mortgage comparison tools that can be helpful in this regard. That, along with advice from your broker.

When comparing mortgage deals, it's important to look at all the costs and terms - not only the interest rates.

  1. Make a decision - based on total costs and your personal circumstances

Once you've compared the deals accurately and assessed which offer best suits your needs, you're ready to apply for a mortgage.

Make sure that this decision is carefully considered and based on all relevant (and total) mortgage costs and that it's suited to your personal circumstances and requirements.

  1. Application

When you apply for a loan, some brokers will help you with this process and will also follow up with lenders on your behalf.

Once your mortgage contract is concluded, you can purchase the property and start the process of finding tenants and letting it out.

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Best buy to let limited company mortgages

If you're considering a mortgage for a buy to let property, then you'll probably want to know where to start looking.

Not all banks offer buy to let mortgages, and not all banks or building societies will provide finance for certain types of properties or for limited companies.

For example, many lenders specifically exclude loans for houses of multiple occupation (HMOs), properties of certain construction types (like houses with thatched roofs), and many also exclude first time buyers.

In those cases, you may want to consider specialist lenders who specifically cater to your exact needs and circumstances.

Here are a couple of possible lenders for you to consider when you're looking for a buy to let mortgage for a limited company:

  • Banks

Most of the large banks in the UK offer buy to let mortgages, although not all will have deals for limited company buy to let mortgages. And typically the rates for companies will be higher than what's on offer to an individual.

For example, Barclays buy to let mortgage for business offers fixed and variable loans.

  • Building societies

As with large banks, many building societies have their own eligibility criteria for buy to let mortgages, and some exclude limited company mortgages.

Examples of some of the largest UK building societies include Nationwide Building Society, Coventry Building Society, and Yorkshire Building Society.

  • Specialist lenders

If you're looking for a mortgage for your buy to let, and you don't meet the eligibility criteria of banks and building societies - then you may want to look at specialist mortgage lenders.

Specialist lenders are also more likely than high street lenders to accept limited companies that own larger portfolios of buy to let properties.

Your mortgage broker should be able to advise you on the best options to suit your particular needs.

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Frequently asked questions about company buy to let mortgages

If you're looking for a company buy to let mortgage, then here are some answers to frequently asked questions that may be helpful.

Am I eligible for a buy to let mortgage?

It's good to be aware that buy to let mortgages have different eligibility criteria compared with residential mortgages.

And if you're looking for a company buy to let mortgage, then there may be some extra requirements like needing to sign a personal surety agreement.

In general, the eligibility criteria for buy to let mortgages include being:

  • Over 18 years;
  • Having a minimum income of at least £25K a year;
  • Already owning a property (i.e. not a first time buyer);
  • Having an expected rental yield of 125% that of your monthly mortgage repayments.

In addition, when buying a buy to let through a limited company, you may need to show that your limited company is UK registered and that the Standard Industry Classification (SIC) codes relate to property investment or development.

Also be aware of specific exclusions when it comes to buy to lets. Many lenders won't provide finance for housing association real estate and Local Authority lets. And many also exclude lending for HMOs, holiday lets and certain types of construction.

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

In addition to buying a residential property to rent to tenants, you may be looking to invest in a commercial premises as a buy to let.

When deciding which commercial buy to let mortgage for your limited company is right for your needs, there are a few things to consider. After all, getting a buy to let mortgage for a limited company can be a complex process.

Firstly, think about what type of interest rate will suit you best - a fixed interest rate or a variable interest rate. For buy to let mortgages, fixed interest rate mortgages are more commonplace, and they're typically for terms of between two and five years. Another option is an interest-only mortgage, which is quite typical for buy to lets.

Also consider how much deposit you can put down. In general, the bigger the deposit, the more favourable your deal rates may be.

And, if you opt for a longer term you can spread out the repayments over a longer period, which means your monthly repayments are usually lower than a shorter term deal.

It's a good idea to consider all of these costs and options before comparing limited company buy to let mortgage rates. Having a holistic view of options and full costs can help you compare deals more accurately.

A specialist mortgage broker can also provide invaluable advice in helping you source and decide on the most appropriate BTL mortgage for your limited company.

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What are the risks of purchasing a buy to let property?

No investment is without risk. And the same applies to buy to let properties.

Here are some of the risks to consider before you purchase a buy to let:

  • Undesirable tenants: Landlords always run the risk of getting tenants who don't look after a property well, don't pay at all or on time, and who create a nuisance or destroy property. This can create financial and legal implications of a serious nature.
  • Property market crash: If you were hoping to make money by selling your property in time (or by flipping it), and there's a property market crash, you could lose out on the expected appreciation value. In the worst case scenario, you could even make a loss.
  • Poor ROI and investment choice: Some people make unfortunate purchases that end up not making the return on investment (ROI) that they'd hoped for. This can be the result of a range of factors - one of which is buying a property without having done enough local market research to ensure it's a profitable investment.
  • Gaps in tenancy: As a landlord you'll have monthly overhead costs and presumably mortgage interest repayments to make. If you have gaps in tenancy, that can affect your cash flow and ability to meet your financial obligations. That can have devastating effects if you don't have a contingency plan in place, or if the gaps are large or frequent.
  • Lower rental yield than expected: If you aren't able to charge the rent that you'd expected, then you may not be able to cover all of your monthly costs associated with managing your buy to let. That includes your mortgage repayments, which can put your property ownership at risk.
  • Rising interest rates: If your mortgage is tied to interest rate fluctuations (with a variable interest rate), then if interest rates rise sharply you may be liable to pay more than you'd budgeted for.
  • Lower demand for rentals: If demand for rentals suddenly dries up, you could find yourself in the unenviable position of not having a tenant to fill your rental. And when demand wanes, you may also find that rental prices drop.
  • Climate risks: The impacts of climate change include more severe weather events and storms, floods and droughts. This can put properties at risk, particularly if they are in low-lying coastal areas. Property damage can be expensive to fix, and as climate impacts increase, so too may insurance premiums.

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  • Environmental risks: There are many environmental risks when buying property. That's why it's vital to have all the necessary checks done before you buy, so you know what you're getting yourself into. For example, the land may be susceptible to slippage, subsidence or flooding. There could be noxious plants like Japanese Knotweed on the property that could affect the structure of the property and may cause a nuisance that you could be liable for. Innovative tech tools like Pivro are designed to help provide detailed property information about environmental risks, to help prospective buyers be aware of this type of information.
  • Rising landlord costs: There are a range of costs associated with being a landlord. That includes maintenance costs, accounting fees, legal fees, insurance and agency fees. If these fees rise more than you anticipated, that could also affect your cash flow and budget.

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Final thoughts on getting a limited company buy to let mortgage

Buying investment property to rent out to tenants requires lots of careful consideration. From identifying the best buy to let areas and properties, to finding a suitable buy to let mortgage.

Getting a buy to let mortgage for a limited company can be a daunting and complicated process. We hope this article helps provide some useful insights and tips. 

It's worth considering the benefits and drawbacks of buying a buy to let investment through a limited company in the UK. While it may not suit everyone, it's an attractive option particularly for portfolio landlords.

Contact Pivro

To learn more, contact Pivro and speak with a marketing automation for property professionals expert who can answer any questions you might have.

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DISCLAIMER: Please do not consider this tax, financial, mortgage or legal advice. We’re simply sharing general information, and we highly recommend you speak to a registered and qualified professional about your individual circumstances before making any decision based on the information provided on this website.

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