Limited Company Buy to Let Mortgages: A Step-by-Step Guide

Limited company buy-to-let mortgages can be a great way to invest in property and benefit from tax advantages. However, they can also be more complex than traditional buy-to-let mortgages, so it’s important to understand the risks and benefits before you get started.

In this article, we’ll look at what limited company buy-to-let mortgages are, how they work, and who they’re right for.

We’ll also discuss the tax implications of owning a buy-to-let property through a limited company and how to find the best mortgage for your needs.

So whether you’re a seasoned property investor or you’re just starting out, read on to learn more about limited company buy-to-let mortgages.

What is a limited company in the UK?

A limited company in the UK is a type of business structure that is separate from its owners (typically shareholders) and those appointed to run it (directors). Its defining characteristic is limited liability, which means that the company’s owners are not personally liable for its debts. This means that if the company goes bankrupt, the owners may not lose their personal assets.

Limited companies must be incorporated at Companies House, the UK’s official register of companies. They must also have a unique company registration number and a name ending with “Ltd.” or “Limited.”

There are two main types of limited companies in the UK: private and public. Private limited companies are the most common type of limited company, and a limited number of shareholders own them. A wider range of shareholders owns public limited companies, and their shares can be traded on the stock market.

Limited companies offer a number of advantages over other types of business structures, such as sole proprietorships and partnerships. These advantages include:

• Limited liability: As mentioned above, the owners of a limited company are not personally liable for its debts. This can provide significant financial protection.
• Separate legal personality: A limited company is a separate legal entity from its owners. This means the company can own property, enter into contracts, and sue or be sued in its name.
• Ease of transfer: Shares in a limited company can be easily transferred, making it easier to raise capital.
• Tax benefits: There are a number of tax benefits available to limited companies, such as the ability to claim tax relief on business expenses.

However, there are also some disadvantages to limited companies, such as:

• More complex administration: Limited companies are subject to more complex administration requirements than other business structures.
• Higher compliance costs: Limited companies are subject to higher compliance costs, such as filing annual accounts and paying corporation tax.
• More expensive to set up: Setting up a limited company is more expensive than setting up other types of business structures.

Overall, limited companies offer a number of advantages over other types of business structures. However, they are also more complex and expensive to set up and run. If you are considering setting up a limited company, you should carefully weigh the advantages and disadvantages before deciding.

What is meant by a buy-to-let mortgage in the UK?

A buy-to-let mortgage is a type of mortgage that is specifically designed for individuals who are interested in buying property to rent out. Buy-to-let mortgages work differently from standard residential mortgages, so it’s important to understand the key differences before you apply for one.

Here are some of the key differences between buy-to-let mortgages and standard residential mortgages:

• Loan-to-value ratio: Buy-to-let mortgages typically have a lower loan-to-value ratio than standard residential mortgages. This means you’ll need a larger deposit to secure a buy-to-let mortgage.
• Interest rates: Interest rates on buy-to-let mortgages are typically higher than interest rates on standard residential mortgages. This is because buy-to-let mortgages are considered to be riskier by lenders.
• Tax relief: You can claim tax relief on mortgage interest payments and other expenses associated with your buy-to-let property. This can help to reduce your overall tax bill.
• Regulations: There are a number of regulations that apply to buy-to-let landlords in the UK. These regulations cover rent increases, tenant rights, and property standards.

If you’re considering buying a property to rent out, speaking to a qualified mortgage advisor is important. They can help you understand the different types of buy-to-let mortgages available and find the one that’s right for you.

Here are some of the benefits of a buy-to-let mortgage:

• You can earn an income from renting out your property.
• You can build up equityThe difference between the value of the property and the amo... in your property over time.
• You can claim tax relief on mortgage interest payments and other expenses.

However, there are also some risks associated with buy-to-let mortgages:

• You could lose money if your property doesn’t rent out or if the value of your property falls.
• You could be liable for any damage caused by your tenants.
• You’ll need to be a good landlord and manage your property effectively.

If you’re considering a buy-to-let mortgage, it’s important to weigh the benefits and risks carefully before deciding.

Buy to Let Mortgage for a Limited Company

A buy-to-let mortgage for a limited company is a loan for a company that wants to buy a property to rent out. These mortgages work the same way as normal buy-to-let mortgages, but there are some extra considerations when taking a buy-to-let mortgage through a limited company.

Here are some of the key differences between buy-to-let mortgages for individuals and those taken out by limited companies:

LTV: Limited companies can usually only borrow up to 75% of the property’s value. It means you’ll need a larger deposit if you take out a loan through a ltd organisation. Please note that these figures change frequently, so we suggest you contact a specialist mortgage broker before starting any application.

Interest rates: Interest rates on BTL mortgages for companies are typically higher than those for individuals as lenders see them as riskier.

Tax relief: You can still claim tax relief on mortgage interest payments and other expenses associated with your buy-to-let property. However, the rules are different for limited companies than for individuals.

Regulations: There are a number of regulations that apply to buy-to-let landlords in the UK. These regulations cover rent increases, tenant rights, and property standards. It’s important to familiarise

What are the eligibility criteria for a limited company to get a buy-to-let mortgage in the UK?

The eligibility criteria for a limited company to get a buy-to-let mortgage in the UK vary from lender to lender, but there are some general factors that most will look at. These include:

• Company structure: The company would generally be a special purpose vehicle (SPV), set up solely for the owning and letting of property, however there are limited lenders who will consider lending to a trading company.
• Minimum incomeThe minimum income required for a borrower to be eligible fo...: Some lenders require the company to have a minimum annual income of £25,000 – £30,000.
• Credit history: The company’s credit history will be checked, and any adverse credit will be considered.
• Property: The property must be suitable for letting, and the lender will want to see a rental agreement in place.
• Personal guarantees: The company’s directors may be required to provide personal guarantees for the mortgage.

In addition to these general factors, some lenders may have specific requirements, such as a maximum age limit for directors or a minimum number of years of trading history.

If you are considering taking out a buy-to-let mortgage through a limited company, it is important to speak to a mortgage broker who can help you understand the eligibility criteria and find a suitable lender for your needs.

Here are some additional factors that lenders may consider when assessing a limited company’s application for a buy-to-let mortgage:

• The company’s financial strength: Lenders will want to see that the company has a strong financial track record and can meet its financial obligations.
• The company’s management team: Lenders will want to be confident that experienced and competent individuals manage the company.
• The property market: Lenders will want to assess the state of the local property market and the demand for rental properties in the area.

If you are considering taking out a buy-to-let mortgage through a limited company, it is important to research and understand the eligibility criteria. By working with a mortgage broker, you can get the best advice on the right mortgage for your needs.

What are the advantages and disadvantages of investing in buy-to-let via a limited company?

There are advantages and disadvantages to getting a limited company buy-to-let mortgage in the UK.

Advantages:

• Potential tax savings: You may be able to save money on taxes by offsetting mortgage interest and other expenses against rental income.
• Greater flexibility: You can keep profits in the company until you need them and pass on the company to your heirs more easily than a property.
• More favourable lending terms: Some lenders offer more favourable lending terms to limited companies, such as higher loan-to-value ratios.
• Ease of transfer: It is easier to transfer a property owned by a limited company than one owned by an individual.

Disadvantages:

• Higher costs: Limited company mortgages typically have higher interest rates and fees than individual buy-to-let mortgages.
• More complex: There is more paperwork and administration involved in owning a property through a limited company.
• Potential tax liability: If the company makes a loss, you may be personally liable for the tax bill.
• Lack of flexibility: You may have less flexibility in managing the property, such as setting the rent or making repairs.

Whether or not a limited company buy-to-let mortgage is right for you depends on your circumstances and tax situation. If you consider this option, speaking to a financial advisor for professional advice is important.

Next Steps

Getting a limited company mortgage has advantages and disadvantages, which we discussed in the article.

If you are keen to explore taking out a buy-to-let mortgage through a limited company, it is important to research and speak to a qualified professional before starting your mortgage application. A specialist broker will be able to assess your needs and advise on whether this is the right type of financing for you. They can also help you understand the different eligibility criteria, interest rates, and fees associated with this type of mortgage.

FAQs

What is the functioning mechanism of a buy-to-let mortgage for a limited company?

Buy-to-let mortgages for limited companies are specifically designed for homeowners who own their property through a company. These types of mortgages are offered by specialist lenders, who are able to underwrite mortgages for businesses in a broad range of circumstances.

To qualify for a buy-to-let mortgage for a limited company, the company generally be an SPV, meaning it has a structure designed specifically for owning properties. The lender will also want to ensure the property’s rental income is more than enough to cover the mortgage repayments. Normally, the lender will require the rental income to be at least 125% of the interest payment.

In addition, the underwriter will examine the financial situation of any shareholders or directors of the company and may require a minimum level of personal income to cover any void periods.

Specialist lenders are more likely to accept larger buy-to-let property portfolios owned through the limited company. High street lenders tend to cap the number of properties a limited company can own at around three.

Here are the key points about how buy-to-let mortgages for limited companies work:

• The property must be owned by a company that is an SPV.
• The rental income must be at least 125% of the interest payment.
• The shareholders or directors of the company must have a minimum level of personal income.

Specialist lenders are more likely to accept larger property portfolios.

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

When choosing a buy-to-let mortgage for a limited company, there are a few key factors to consider, including:

• The type of interest rate: You can choose between a fixed-rate mortgage or a variable-rate mortgage. Fixed-rate mortgages offer certainty of payments, while variable-rate mortgages can be more cost-effective in the short term.
• The mortgage term: The mortgage term is the length of time you will have to repay the mortgage. A longer mortgage term may mean lower monthly payments, but you will pay more interest over the lifetime of the mortgage.
• The type of mortgage: You can choose between an interest-only mortgage or a repayment mortgage. Interest-only mortgages only require you to repay the interest on the mortgage, while repayment mortgages require you to repay both the interest and the principal.
• The lender: There are a number of lenders who offer buy-to-let mortgages for limited companies. It is important to compare different lenders to find the best deal for your needs.

Once you have considered these factors, you can start comparing buy-to-let mortgages for limited companies. You can use a mortgage broker to help you compare different deals and find the best one for you.

What are the differences between a limited company, an LTD company, and an SPV mortgage?

An SPV mortgage is a mortgage that a limited company takes out. SPV stands for “Special Purpose Vehicle”. An SPV is a type of limited company that is set up specifically for the purpose of owning and managing property. SPV mortgages are often used by property investors who want to protect their personal assets from the debts of the company.

A limited company is a type of business entity owned by shareholders. The shareholders are not personally liable for the debts of the company, but only to the extent of their investment. Limited companies are often used for property investment, as they can provide limited liability protection for investors.

An LTD company is simply a limited company. The term “LTD” is short for “limited”. There is no difference between an LTD company and a limited company.

Here is a table that summarizes the key differences between a limited company, an LTD company, and an SPV mortgage: