If you’re considering investing in property through a limited company, understanding how a limited company mortgage works is crucial. This type of mortgage is specifically designed for companies, including those set up by landlords solely for the purpose of purchasing and managing rental properties. While there are some similarities to personal buy-to-let mortgages, there are also significant differences that you should be aware of.

At SPV Mortgages, we offer a wide range of mortgage solutions for investors, including limited company mortgages and buy-to-let mortgages. Knowing which one to go for can be tricky or confusing, but our team has come together to create this helpful guide to assist you. For information on any of the topics we explore, please don’t hesitate to reach out to our team!  

Can I Get a Limited Company Mortgage as a New Landlord? 

The short answer is yes. As a new landlord – meaning you have never had a property portfolio for investment – a limited company mortgage can offer many benefits when compared to a traditional buy-to-let mortgage. However, there are several factors that must be considered before moving forward as a limited company and lenders will assess your application differently than if you were to apply for a buy-to-let mortgage. 

One of the main considerations for lenders is the structure of your limited company. Most lenders will prefer the company to be an SPV with no other business activities but property investment. As a new landlord, lenders will also scrutinise your financial situation, credit history, and experience, but having a strong business plan and demonstrating a clear strategy for managing the property can work in your favour. To find the right mortgage option for you, allow our team to guide you through some of the biggest differences between property investing through a buy-to-let mortgage and as a limited company. 

Ownership Structure

With a buy-to-let mortgage, the property is personally owned by the individual or individuals who have taken out the mortgage. This means the property will be considered a personal asset and the mortgage debt a personal liability. As the owner of the property, you will be responsible for repaying the mortgage as well as any tax obligations that arise from the rental income, including income tax on rental profits and capital gains tax when the property is sold. Additionally, the property and any associated debts are linked directly with your personal financial situation which could impact your overall financial stability and credit score. 

Rather than owning the property as an individual, with a limited company mortgage it is owned by a limited company that has typically been set up as an SPV. Due to this separation of ownership, there are a few ways your finances and liabilities are impacted:

• Debts and mortgages are the responsibility of the company rather than individuals. 
• Rental tax is subject to corporation tax, which is typically lower than the higher rates of personal income tax. 
• Limited company mortgages allow for easier transfer of property ownership. 
• Lenders may require a larger deposit and interest rates may be higher. 

Interest Rates

When you choose to invest through a limited company mortgage, the mortgage interest is fully deductible as a business expense, meaning the interest payments on your mortgage can be subtracted from rental income before calculating your taxable profit. While the rental income itself is subject to corporation tax, this is generally lower to personal income tax rates and can be particularly advantageous for higher earners, or for those looking to reinvest profits into expanding their property portfolio. 

In contrast, buy-to-let mortgages are less favourable for individual landlords when it comes to tax and interest rates. Mortgage relief is limited to 20% tax credit, meaning only a portion of your mortgage interest can be offset against your tax bill. Additionally, rental income is taxed as personal income and could push you into a higher tax bracket depending on your other earnings. 

Application Process

If you’re looking for a more streamlined process when applying for an investment mortgage, buy-to-let mortgages focus primarily on the individual’s personal financial situation and credit history. Lenders will evaluate your income, existing debts, and credit score to determine your ability to repay the mortgage. You will be required to present proof of income, bank statements, and possibly tax returns. 

Applying for a limited company mortgage can be more complex and will often require a range of company specific documentation. This will include detailed financial statements that have profit and loss accounts, balance sheets, and cash flow statements. This is used to assess the financial health of the company. For new limited companies, you may also require a business plan outlining your strategy and projected rental income, and you will often need guarantees from the company directors. 

To find out more, get in touch with SPV Mortgages now

We offer a wide range of both buy-to-let, and limited company mortgage services across the UK, including Manchester, Liverpool, Nottingham, Leeds, Edinburgh, Cardiff, and more. For assistance in finding the right mortgage solution for your investing needs, contact SPV Mortgages today to speak with a member of our team.