If you are building a portfolio of buy-to-let properties, then it is useful to know that your options aren’t limited to standard buy-to-let mortgages if you keep your property portfolio under a limited company.  Here we will be explaining the limited company mortgage criteria, how they work and the potential benefits they can offer.

What is a limited company?

A limited company is a business that is limited by shares or limited by guarantee. A limited company is legally separate from the people who run it (its owners and managers) and has separate finances from the personal finances of the owners. Limited companies in the UK must be incorporated at Companies House.

Limited company mortgages

Many landlords choose to keep their buy-to-let property portfolio under a limited company. For higher rate taxpayers, this is a more tax-efficient option.

Limited company mortgages are typically offered at 75% LTV, although you could get up to 85% depending on circumstances, however this is more expensive and does vary from lender to lender. Both fixed and variable rates are available and interest rates can also vary, typically between 2-5%.

The affordability criteria for limited company mortgages are usually based on the potential income from the rental property. Again, this figure will vary between lenders, but the rental income will usually need to be at least 125% of the mortgage repayment.

In addition to the rental income, lenders may also want to carry out a credit check on the director(s) of the company and most lenders will require a personal guarantee from the director to approve the loan.

Special Purpose Vehicles (SPVs)

Limited company mortgages are often available for limited companies that can be classed as Special Purpose Vehicles, or SPVs. This means that the company’s sole purpose is property investment, specifically the purchasing, selling, and letting of properties. The limited company needs to be registered with Companies House as an SPV for property.

A limited company’s SIC code can be found through Companies House once registered. This code will need to be presented to lenders as part of the mortgage application.

It’s important to note that there are lenders able to offer loans for ‘trading’ companies other than just SPVs, but these are harder to come by. Speak to us if you require funding to buy a property in a ‘trading’ company name.

Limited company mortgage criteria

• The borrower must be a registered limited company. Partnerships and LLPs are not eligible.
• Some lenders will only offer a limited company mortgage to an SPV, but other lenders may offer loans for other trading companies.
• Most lenders will want a personal guarantee from the limited company director(s) to ensure that the repayments will be met.
• The majority shareholders must be the directors of the limited company.
• The number of majority shareholders will usually be limited to two. There is no limit on shareholders with shares worth less than 20%.
• The lenders must be made aware of any company changes.

What are the benefits of taking out a limited company mortgage?

Higher rate taxpayers may see significant tax savings if they keep their property portfolio under a limited company. Paying income tax on a property without tax relief will likely be more expensive than paying corporation tax, as corporation tax is 19% and the tax rate on income over £50,271 (up to £150,000) is 40%.

There is also reduced financial risk because personal liability is separate from the limited company, though a personal guarantee may be required for the loan. If no personal guarantee is required, then the directors’ assets would be unaffected by the dissolving of the company.

Directors can also withdraw personal deposits from their limited company with very little tax liability.

 If you are looking for a mortgage broker to help you find the right limited company mortgage for you, then please get in touch, we will be happy to help.