Limited company buy-to-let mortgages

SPV mortgage eligibility and lending criteria

Lenders assess a limited company buy-to-let mortgage on the rental income the property produces, the interest cover ratio that rent gives against their stress test rate, and the strength of the company and its directors. Most want the special purpose vehicle registered at Companies House with property SIC codes, personal guarantees from the directors, and a clear picture of any background portfolio held personally or in other companies. First time landlords are considered by some specialist lenders, while others want a track record, so eligibility comes down to matching the borrower and the property to the right criteria. We tell you which lenders and products are realistic before you apply. Portfolio landlords with four or more mortgaged properties are stress tested across the whole portfolio under the PRA rules, which means the business plan, the cash flow and the EPC ratings on the stock all matter. We package the company documents, the AST and rental evidence and the portfolio schedule so the underwriting runs cleanly. All criteria are indicative, vary by lender, borrower and property, and are not an offer of finance.

How much can a limited company borrow?

A limited company can borrow against the value of the property and the rent it produces, indicatively up to 75 to 80 percent loan to value, so a deposit of around 20 to 25 percent, with the exact leverage set by the interest cover ratio the rental income supports against the lender's stress rate. A higher rent relative to the loan gives more headroom, which is why higher yielding property and lower LTV cases price more keenly and pass the stress test more easily. Where the rent is tight, a lender may reduce the loan or accept top slicing from the directors' other income to bridge the gap. There is no standard maximum: borrowing scales with rental income across the portfolio rather than a single salary multiple, which is one reason landlords hold through a company. We model the interest cover and the achievable loan on our limited company mortgage calculator and buy-to-let mortgage calculator before approaching lenders, so the case goes to market at a level that will actually fund. The figures are illustrative, vary by lender and property, and are not an offer of finance.

Rates, product fees and how lenders stress test

Company buy-to-let mortgage rates usually sit a little above equivalent personal lending, reflecting the extra underwriting of the structure and the guarantees, though the gap has narrowed as company lending has become mainstream. As an indication, two and five year fixed rates for limited company buy-to-let currently range from around 4.5 percent to 6.5 percent depending on LTV, the interest cover ratio and the product fee, with lower rates typically carrying a higher arrangement fee. Whether a two year or a five year fixed rate is right depends on the plan for the property. Expect a lender product fee, a valuation fee, and legal costs for both the lender and the company, alongside the rate itself, plus any early repayment charge if you redeem inside the fixed period. Lenders stress test the rent at a notional rate, often the higher of the pay rate plus a margin or a floor rate, and a five year fixed rate is usually stress tested more gently than a two year, which can lift the achievable loan. We disclose our broker fee in writing and quote the all in cost so the case can be compared properly. The figures are indicative and not an offer of finance.

Limited company versus personal name ownership

Whether to hold buy-to-let in a limited company or in a personal name is a decision for a landlord and their tax adviser, not a broker, and it turns on the treatment of mortgage interest relief, corporation tax against income tax, the size and plans for the portfolio, and how profits will be drawn. Since section 24 restricted mortgage interest relief for individual landlords, many higher rate taxpayers have found a Ltd company more efficient, because a company pays corporation tax on profit and offsets interest in full, but incorporating an existing portfolio can trigger stamp duty and capital gains tax, so these are real considerations rather than a simple switch. We do not give tax advice. What we do is arrange the mortgage once the structure is decided, placing personal and company cases with the lenders that fit, and structuring a portfolio that spans both personal and SPV ownership. Setting up a buy-to-let limited company is quick and inexpensive, and where a landlord is considering transferring existing buy-to-let property into a company, we work alongside their accountant and can point to our guide on moving buy-to-let into a limited company. Where a case would be a regulated mortgage contract or a consumer buy-to-let, we refer it to an authorised firm.