Buy to let mortgages for a limited company

Applying and getting a buy to let mortgage as a limited company can help you reduce costs or manage your portfolio more effectively, especially if you have multiple properties.

Setting up a limited company to apply for a buy-to-let mortgage has become more popular as rules around mortgage relief have changed over the past few years. For many investors with larger portfolios, and higher rate taxpayers, the savings can be significant. Plus, some lenders such as HSBC can limit lending to larger portfolios.

Landlords also opt for the limited company option if they want to buy rental property with more than one other person, or are looking to separate themselves and their families assets should there be a financial issue in the future.

Is there a special type of limited company for buy-to-let?

Although we can find you exceptions, most lenders only consider Special Purpose Vehicle (SPV) companies. An SPV is a company that only deals in property.

You'll want to register your SPV as one of the following at Companies House:

• 68100: Buying and selling 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

The advantages of a buy-to-let limited company:

• It can be more tax efficient to run your portfolio as a limited company rather than as a landlord. This is not always the case and you should seek independent tax advice.
• The whole point of limited companies is that liability is limited. Normally this means that if the company dissolves, you do not need to sell personal assets to pay debts. HOWEVER: this may not be the case with buy-to-let mortgages. If you are applying as a new company you may be asked to give a personal guarantee. See below.
• You can have more than 2 people on the title deeds
• Less impact on your ability to get personal credit. Limited company buy-to-let mortgages may not count towards your total debts when remortgaging your family house for instance. borrowing.

The disadvantages of a buy-to-let limited company:

• You have less lenders to choose from.
• There could be legal costs setting up your buy to let limited company

Buy to let mortgages for existing limited companies

If you already have a SPV buy-to-let limited company, then getting a mortgage this time round should be a bit easier. You'll have a track record, which you can demonstrate in your trading history. If that is a good track record – one where you always make the mortgage repayments and run at a profit, you'll represent much less risk to a lender than someone who is setting up a limited company to apply for a buy to let mortgage for the first time.

That said, you can run into issues if your portfolio gets to a certain scale, no matter how successful your buy-to-letting is. Certain lenders do prevent you taking out more mortgages with them if you have already hit their upper limit.

Your Mojo buy-to-let expert brokers will be able to advise you on specialist lenders who may be able to help you if this is the case.

Applying for a buy-to-let mortgage as an existing limited company usually requires you to show 2 years of accounts.

Also, if the income is less than £25,000 per year, you may need to prove your personal income too.

Buy to let limited company mortgages for new companies

As you may have guessed, if you are setting up a new company while applying for a buy-to-let mortgage, the lender will see you as more of a risk.

That doesn't make applying for a buy-to-let mortgage as a new limited company impossible, though. It basically just means that you'll have no credit or trading history, so lenders ask that the directors become personally responsible for the mortgage debt should the company not be able to repay it – a process known as a personal guarantee.

As with any mortgage application that is deemed high risk, if you are a new company, you may be asked for a higher deposit or additional security too.

Setting up a new property company for a buy to let mortgage

• First, you'll need to register your company with Companies House as an SPV.
• As your company has no trading history you'll need to undergo credit scoring to see if you are eligible for a buy-to-let mortgage
• If there is more than one director in your company, then at least directors will need to be credit worthy enough.
• Your lender will next assess the income of your directors to understand affordability. Criteria here varies from lender to lender. For example, Barclays require the majority shareholder to have a minimum personal income of £75,000 per year, but other specialists have much lower caps.
• LTV assessment: Again, this depends on your lender, your property and your personal financial circumstances, but typically lenders will start lending at 85% loan-to-value
• Your property will need to generate rent that is 125% of the mortgage payment at least. Some lenders will require a 150% buffer.

The whole point of these extra checks is to stop lenders looking at your new buy-to-let mortgage application in isolation, so they aim to show red flag risks to lenders, such as empty properties and negative equity.

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