Buying Rental Property Through a Limited Company

If you are buying or refinancing rental property or HMO through a limited company, the mortgage process works differently from a personal buy-to-let application. This page explains how lenders assess limited company cases, what structure they expect, and what you need to prepare. Mortgage One has whole-of-market access across high street lenders, building societies and specialist buy-to-let providers, and can search for limited company mortgage options that match your company structure, property type and portfolio position.

Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.

For a free initial consultation about a limited company buy-to-let mortgage, call 01202 155992 or contact Mortgage One.

Why Landlords Use a Limited Company Structure

The number of landlords purchasing through limited companies has increased significantly since the full introduction of the Section 24 finance costs restriction in April 2020. Under Section 24, individual landlords can no longer deduct mortgage interest as an expense from rental income. Instead, they receive a basic-rate tax credit of 20% on finance costs. For higher-rate and additional-rate taxpayers, this can substantially increase the tax payable on rental profits.

A limited company is not affected by Section 24. Mortgage interest remains a fully deductible business expense when calculating corporation tax. The current corporation tax rate is 19% for companies with taxable profits of £50,000 or less, rising to 25% for profits above £250,000, with marginal relief applied between those thresholds.

This difference in tax treatment is the primary reason many landlords now purchase new properties through a company structure. However, the decision to use a limited company depends on your individual tax position, how you plan to extract profits, and whether you intend to retain earnings within the company or draw them as dividends. Tax treatment varies according to individual circumstances and is subject to change. You should take advice from a qualified accountant before deciding on the most appropriate ownership structure.

How Lenders Assess Limited Company Applications

Lenders treat limited company buy-to-let applications differently from personal buy-to-let cases. The key areas they assess are the company structure, the rental income, the personal profile of the directors and the property itself.

Company structure and SPV requirements.

Most lenders require the company to be a special purpose vehicle (SPV) set up specifically for property investment. The company’s SIC codes should reflect property activity, typically 68100 (buying and selling of own real estate) or 68209 (other letting and operating of own or leased real estate). Some lenders will consider trading companies, but the majority prefer a clean SPV with no unrelated business activity.

Rental income coverage.

Lenders assess whether the expected rental income covers the mortgage payment by a specified margin. This is known as the interest coverage ratio or rental stress test. Most lenders require the rent to cover between 125% and 145% of the mortgage payment, calculated at a stressed interest rate rather than the actual pay rate. The stress rate varies by lender and product but is commonly set at around 5.5% to 6.5%. If the rental coverage falls short, a higher deposit or a different lender may be needed.

Personal guarantees and director profile.

Lenders typically require personal guarantees from the company directors. This means that although the mortgage is in the company’s name, the directors are personally liable if the company defaults. Lenders will also assess the directors’ personal credit history, income and experience as landlords. Some lenders require at least one director to have prior landlord experience, while others are open to first-time landlords purchasing through a company.

Deposit and loan-to-value.

Limited company buy-to-let mortgages typically require a minimum deposit of 20% to 25%, giving a maximum loan-to-value of 75% to 80%. A larger deposit generally opens access to more competitive rates and a wider choice of lenders. If you are looking at buy-to-let mortgages more broadly, the buy-to-let mortgage guide on the Mortgage One website covers the general principles of how these products work.

To discuss how a lender would assess your limited company application, call 01202 155992 or contact Mortgage One for a free initial consultation.

Setting Up the Right Company Structure

If you have not yet set up a company, it is worth understanding what lenders expect before you incorporate. Getting the structure right at the outset avoids complications at the mortgage application stage.

•       Register with the correct SIC codes. Use 68100 and 68209 as described above. Adding these at incorporation is straightforward and ensures lender compatibility.

•       Keep the company clean. Lenders prefer SPVs with no trading history outside of property. If your company has other business activities, some lenders may decline or apply stricter criteria.

•       Director and shareholder structure. Consider who will be named as directors and shareholders. This affects personal guarantees, tax planning and succession. Some lenders restrict the number of directors or require all shareholders to be named on the mortgage.

•       Company accounts. New SPVs with no trading history are accepted by many lenders. For established companies, lenders may request the latest filed accounts alongside the application.

If you already hold properties personally and are considering transferring them into a company, be aware that this is treated as a sale at market value. It will typically trigger capital gains tax on any gain and stamp duty land tax payable by the company at the higher additional property rate, currently 5% above standard SDLT bands in England and Northern Ireland. The stamp duty calculator on the Mortgage One website can help you estimate the SDLT cost. You should take professional tax advice before proceeding with any transfer.

Portfolio Landlords and Expanding Through a Company

If you own four or more mortgaged buy-to-let properties, you are classified as a portfolio landlord under Prudential Regulation Authority rules. Portfolio landlord applications require additional information, including a schedule of all properties, rental income, outstanding mortgages and a business plan. The portfolio landlord mortgages page on the Mortgage One website explains how these rules work and what lenders require.

Landlords who are also UK expats or non-UK residents may face additional criteria when applying for a limited company buy-to-let mortgage. Some lenders restrict lending to companies with overseas directors or shareholders. The expat limited company buy-to-let page covers how these cases are assessed and which lenders are more flexible on residency.

If you already hold limited company buy-to-let mortgages and your current deal is ending, it is worth reviewing whether to take a product transfer with your existing lender or remortgage to a new provider. The limited company buy-to-let remortgage page explains what lenders are changing and why this matters for existing borrowers.

To explore your limited company buy-to-let mortgage options, call 01202 155992 or contact Mortgage One. The initial consultation is free and without obligation.

The information provided in this article is for general guidance only and does not constitute personal or regulated financial advice. If you’d like to understand what these moves could mean for you, speak to Mortgage One. We can explain your options and timings based on your specific circumstances.

Some Buy to Let mortgages are not regulated by the Financial Conduct Authority.

FAQs

1. Do I need to set up a new company to get a limited company buy-to-let mortgage?

Not necessarily, but most lenders prefer a special purpose vehicle (SPV) set up specifically for property investment. If you already have a trading company, some lenders will consider it, but the range of options may be narrower.

2. Are limited company buy-to-let mortgage rates higher than personal rates?

Limited company rates have historically been slightly higher than personal buy-to-let rates, but the gap has narrowed as more lenders have entered this market. The difference varies by lender, deposit size and product type. A broker can compare current pricing across both routes.

3. Can I transfer existing properties from my personal name into a limited company?

Yes, but this is treated as a disposal for capital gains tax purposes and the company will pay stamp duty land tax on the purchase. The costs can be significant and may outweigh the tax benefits, depending on your circumstances. Take professional tax advice before proceeding.

4. What SIC codes do I need for an SPV?

The most commonly required SIC codes are 68100 (buying and selling of own real estate) and 68209 (other letting and operating of own or leased real estate). Adding these at company formation is straightforward.

5. Will I need to provide a personal guarantee?

Yes, in most cases. Lenders require personal guarantees from the company’s directors, which means you are personally liable for the mortgage debt if the company cannot meet its obligations.

6. How much deposit do I need for a limited company buy-to-let mortgage?

Most lenders require a minimum deposit of 20% to 25%. A larger deposit can improve your access to competitive rates and widen the range of lenders available.

7. Can I get a limited company buy-to-let mortgage as a first-time landlord?

Yes. Some lenders accept first-time landlords purchasing through a limited company, although criteria may be slightly stricter than for experienced landlords. A broker can identify which lenders are most suitable for your situation.