Last reviewed on 27th September 2023 by Martin Alexander (Mortgage Advisor)
Mortgages for limited companies are typically only available for Special Purpose Vehicles (SPVs). This means your limited company should be for the sole purpose of property investment, such as buying, selling and letting property.
Limited company mortgages became popular due to changes in UK tax laws. After the changes, many landlords decided to place their buy to let portfolios under limited companies.
Getting a mortgage with a limited company can make landlords more tax-efficient, but can also allow investors to leverage further borrowing against their existing portfolios. In fact, one in two buy to let properties is now purchased with a limited company and it’s certainly no surprise.
This guide is about purchasing property with a limited company. If you’re a director wanting to purchase property as an individual, please read our article on mortgages for directors here.
- What is a limited company buy to let mortgage?
- What are the criteria for limited company mortgages?
- How does a buy to let mortgage with a limited company work?
- What is a Special Purpose Vehicle (SPV)?
- Which mortgage lenders accept limited companies?
- SPV limited company mortgage rates
- Can a newly formed limited company get a mortgage?
- Are mortgages for non-SPV limited companies possible?
- Pros and cons limited company mortgages
- How to apply for a mortgage as a limited company
What is a limited company buy to let mortgage?
Buy to let mortgages for limited companies were created for the purpose of property investment. As a result, investors can buy property through limited companies rather than as individuals. This can be a more cost-effective way to invest in property, as you can offset costs against your limited company.
Key features involve the following:
- 75%-85% loan-to-value mortgages (LTV)
- Rental income must meet 125%-145% of mortgage repayments
- Personal gifted deposits are allowed, not gifts to the company
- Gifts of equity may be considered if owned by the director
- Maximum mortgage amounts of £1m-£1.5m but this can vary from lender to lender
What are the criteria for limited company mortgages?
A limited company must meet the following criteria to be approved for a mortgage:
- Must be a registered limited company in the UK
- The majority of lenders require companies to be registered as an SPV
- Partnerships and LLPs aren’t suitable to apply
- Personal guarantees from directors may be required
- Shareholders are often limited to two individuals and must also be directors
- Must have 100% shareholding
- Lenders must be made aware of company changes
- May qualify for a portfolio mortgage if you own four or more properties
How does a buy to let mortgage with a limited company work?
Getting a buy to let mortgage with a limited company is a popular option but it does depend on your investment goals. This is because investing through a limited company may make your investments more tax-efficient.
For higher-rate taxpayers, savings on tax can be significant. Furthermore, landlords can reduce their financial risk, as personal liability and limited companies are separate entities. That being said, the majority of lenders do require personal guarantees.
It’s important to note that limited company mortgages are not considered to be a form of mainstream lending. High street lenders tend to focus on residential and buy to let mortgages for individuals, rather than company mortgages.
As limited company borrowing is not well documented, landlords that approach high street lenders often can’t find the service or information required. As a result, landlords may assume that getting a mortgage via a limited company isn’t possible and therefore continue to purchase buy to let property through traditional routes.
Will the directors undergo a credit check?
Lenders will carry out credit checks on the directors of the company. If there are multiple directors, then lenders will credit-check at least two directors. Directors with adverse credit may struggle, but there are specialist lenders that may consider lending. Lenders will also request evidence of income, either from the limited company, other ventures or employment.
There are a handful of lenders that offer buy to let mortgages with no minimum income requirements and only require accounts for one year! You’ll more than likely need a specialist broker to access these deals. Our specialists have access to every lender, so if you find yourself in this position, do make an enquiry.
What is a Special Purpose Vehicle (SPV)?
Limited companies that only hold property can be classed as Special Purpose Vehicles (SPV). This is because the company’s only purpose is to hold property. Ensure the limited company is registered with Companies House as an SPV for property.
Lenders will also request a SIC code at the time of applying for a mortgage. A SIC code (Standard Industrial Classification of Economic Activities) is used to classify a business in the trade it operates in. A SIC code can be applied to the company via Companies House.
Which mortgage lenders accept limited companies?
SPV limited companies tend to have more options in terms of lenders and there’s certainly been an increase in the number of lenders entering this market. This is mainly due to the increased demand from landlords creating limited companies for property investment. Some lenders may require landlords to access mortgages through advisors.
Many high street lenders offer mortgages to limited companies. Nonetheless, your limited company must meet the criteria outlined in this article. Furthermore, the property you’re buying through a limited company must meet your lender’s criteria.
SPV limited company mortgage rates
Interest rates typically start at 5.5% and go as high as 7%. The rates offered will depend on your deposit amount and the credibility of your limited company. It’s also important to note that interest rates for limited company applicants are typically higher than those applying as individual landlords.
Limited company mortgages can start from 85% LTV, but are typically offered at 75% LTV. Mortgage rates will vary and can be offered at both fixed and variable rates. Lenders have specific deals solely for limited companies and LLPs. Such mortgage products are usually geared for investment, such as buy to let mortgages.
Can a newly formed limited company get a mortgage?
Mortgages for new limited companies are possible, especially if it’s solely for property investment. If the limited company is new, then registering it as an SPV can make it a lot easier to get a mortgage.
Mortgage products often start at 85% LTV. Affordability is generally assessed on the potential rental income that the property may generate. Potential rental income typically needs to be 125% of the mortgage repayment to be deemed a viable proposition. Some lenders may require this figure to be 145%, so do check before applying.
Are mortgages for non-SPV limited companies possible?
There are only a small number of lenders that may consider mortgages for non-SPV limited companies. Companies may be trading in property in addition to other types of investment. Even if a limited company doesn’t trade in property, but requires a mortgage to buy an investment property, it is still possible.
LTV is slightly lower simply because of the additional risk a lender is taking. Typically, mortgages to non-SPV limited companies start at 75% loan to value.
What if I have a new non-SPV limited company?
Mortgages for new limited companies that aren’t SPV are deemed very high risk. This is because the company has no history, so the lender doesn’t have much on paper to convince them that lending would be safe. New limited companies also won’t have any credit, which poses another red flag for a lender. As the limited company is not classed as an SPV, the purpose of the company also isn’t clear.
The good news is that there are solutions for newly formed limited companies. Lenders may consider lending on the basis that directors can offer personal guarantees. A personal guarantee from a director acts as a safety net. If the mortgage isn’t repaid, then the director becomes liable to pay the unpaid balance of the loan. This is one way to minimise the risk for a lender, but in turn, directors are placing more risk on themselves.
In addition to director guarantees, lenders can also request further security. Further security can be offered by shareholders in the form of a larger deposit or access to their assets, such as properties that have equity.
Pros and cons limited company mortgages
Before deciding to purchase a property with a limited company, it’s important to consider the pros and cons.
- Tax efficiency – The main advantage of having a mortgage under a limited company is that it may make your property ventures more tax-efficient. If you’re a high-rate taxpayer, then a mortgage with a limited company will more than likely be advantageous. Corporation tax is 25% and could be more beneficial in comparison to paying income tax on a property without tax relief.
- Security – When limited companies are created, the personal assets of any directors are completely separate from any ventures carried out by the company. This limits the liability of any directors of that company. If the company was dissolved, directors would still have their personal assets intact. Personal assets may only be chased if directors have offered personal guarantees.
- Boost your borrowing power – If you require a personal mortgage, then lenders may not take finance you’ve already borrowed through the limited company into consideration. This can then increase your maximum loan amount for personal mortgages. Personal deposits can also be withdrawn from limited companies by directors with little or no tax liability.
A limited company mortgage isn’t the right vehicle for every landlord. Without understanding your personal circumstances, it’s very difficult for an advisor to state whether or not a limited company would be the correct avenue to take.
- Higher rates – The market is bursting with lenders offering buy to let mortgages. As the market is extremely competitive, buy to let mortgages can be very attractive in terms of fees and rates. As limited company mortgages are considered to be more niche, they do tend to have higher fees and rates.
- Higher fees and costs – You may find an increase in rates and fees as lenders always assess mortgage applications in relation to risk. It’s far riskier lending to a limited company than it is to an individual.
- Increased administration – Limited companies will require additional administrative duties, especially if you’re creating a new limited company. For instance, limited companies all have legal obligations such as filing annual accounts. You’ll more than likely need an accountant, so do consider the additional time and costs associated with being a shareholder of a limited company.
- Complex assessments – In comparison to regular buy to let mortgages, company mortgages are a lot more complex. The assessments that lenders carry out are usually in greater depth and can take longer to get a mortgage offer. This isn’t always the case, but certainly in our experience, have noticed the difference at times.
How to apply for a mortgage as a limited company
Do consult a specialist mortgage advisor who has experience in this field. Our specialists have experience in mortgages for limited companies and have access to the whole market, including mortgage lenders for limited companies. Also be sure to consult an accountant who has experience with property tax, as a buy to let limited company may not suit every investor.
About the author
Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.