What is a buy-to-let limited company mortgage (aka SPV mortgage)?

A typical mortgage is a legal agreement between the lender and an individual buyer, enabling them to borrow money to fund their buy-to-let property purchase.

Buy-to-let limited company mortgages, on the other hand, are an agreement between the lender and a limited company or SPV.

This company is known as a ‘special purpose vehicle’ (SPV), which means it has been set up solely to hold and manage property on behalf of its shareholders and directors.

In other words, an SPV mortgage allows you to purchase a buy-to-let through a limited company, rather than purchasing it in your own name.

What’s the difference between SPVs and limited companies?

Nothing, essentially!

SPV mortgages and limited company mortgages are the same thing. An SPV is simply a type of limited company. Do you need a big team and a big office to form an SPV limited company?

Nope! The limited company is simply a legal entity which represents your activities as a property investor.

When you purchase a property via a limited company mortgage, you still effectively own and maintain the property yourself; but the property is legally owned by the company on behalf of yourself and the other company shareholders.

And that comes with a number of benefits…

What’s so great about buy-to-let mortgages for limited companies?

In our opinion, lots! But you be the judge; let’s break it down…

 Lower tax rates

Firstly, depending on your circumstances, purchasing a buy-to-let property through a limited company may be more tax-efficient than purchasing in your personal name.

Buying a buy-to-let property in your own name means paying personal income tax on your rental income instead of corporation tax.

Corporation tax is currently just 19%, and remains the same no matter how much rental income your property makes.

But income tax is charged at different rates depending on your marginal rate of tax level.

So, if your rental yields push your annual income into one of the higher brackets, your tax bill will be much higher.

In fact, property tax specialists we’ve spoken to have said for those earning over 100k annually, the effective rate of tax on buy-to-let rent is a whopping 60%.

Ouch!

Mortgage interest tax relief

And here’s the key difference which makes purchasing through a limited company attractive to higher-rate taxpayers – the option to subtract 100% of your mortgage interest and letting expenses from your taxable income.

Sound familiar? This used to be an option for individual landlords too.

But since April 2020, the government has completely phased out this tax relief, replacing it with a tax credit of 20% of mortgage interest payments.

Landlords are seeing their tax bills rise significantly as a result of this change.

To provide an example, let’s imagine you’re a higher-rate taxpayer receiving £950 per month in rent and paying £350 in interest on your mortgage.

Before 2017, you would have been subject to £2,880 in tax – after 2020, your bill would have increased to £3,648.

It’s not all bad news; in fact, there’s very good news. The government’s changes do not apply to buy-to-let mortgages held in limited companies.

That means you’re free to use your mortgage interest and expenses to offset your tax bill – marvelous!

Before deciding if the limited company buy-to-let mortgage route is best for you, check out our handy buy-to-let mortgage tax calculator.

 (Please seek independent tax advice before proceeding with a limited company mortgage.)

Succession planning tax mitigation

A question we get asked on a regular basis is, ‘can I pass my SPV limited company portfolio to a family member in the future?’

The answer is yes! You can simply transfer your limited company’s shares to them; thereby effectively passing all the buy-to-let properties owned in the company’s name into their hands.

And it gets better. You can set the cost of each share at any value you want; subject to HMRC rules at the time.

This means you can potentially avoid paying stamp duty on the transaction by transferring the shares at zero cost.

And, if you transfer the shares before you pass on, there’s also no inheritance tax to pay!

You might still end up paying capital gains tax (or CGT) on the transfer; but unlike personally held properties, you’ll only pay 20% instead of 28%).

Note: You should check if your family members are able to apply for a limited company mortgage themselves before making them a shareholder, as this may affect which lenders they can apply to successfully.

For more information regarding family succession planning, check out this article here.

Easy exit strategy – plus quicker routes to portfolio ownership

So, it’s easy to pass your portfolio on to your family. But it turns out, it’s just as easy to pass it onto another investor.

Perhaps you’re looking to enjoy your retirement, or you’d rather give your children the cash instead of a whole property investment business to run.

Either way, a limited company lets you sell your entire buy-to-let portfolio in one go by simply selling the shares.

This is an incredible time-saver for both the existing investor and the new buyer.

Sellers can turn their investments into cash without having to seek out buyers for each individual property.

Meanwhile, buyers can snag an entire portfolio without the hours, weeks, months, years spent combing property listings, arranging viewings, weighing up investments and making strategic purchases.

All the work has already been done for you. The previous limited company owner might even still have tenants to pass on – so you can skip tenant searches too.

And best of all, there’s no stamp duty land tax to pay. After all, you’re not purchasing the properties but the company that owns them.

There is stamp duty charged on the cost of the shares; but as of 2021, this stands at only 0.5%. Bargain.

Director loans

Finally there’s limited company director’s loans; these are repayable to the director in the future and not subject to income tax.

Effectively, as director of the limited company, you can loan your own money to your limited company to fund a buy-to-let property acquisition.

Then you can simply pay back the loan to yourself from the rental income; all without any additional tax charges.

So there you have it; the many advantages of owning property through a buy-to-let SPV limited company vs personal ownership.

How to set up a buy-to-let limited company?

The first thing to do before you apply for a buy-to-let company mortgage is to set up your limited company.

This can be done on your behalf by your accountant or tax consultant; or you can set one up yourself via one of the many limited company formation services available across the net.

Most offer very similar options, with some throwing in additional benefits (such as discounts for pay-per-click advertising services and free business banking for 12 months).

Whichever method you choose, it’s wise to check with your accountant first before setting up the company.

They’ll be able to check if you’re pursuing the most tax-efficient path to owning buy-to-let property.

When registering your SPV company with Companies House, you’ll need to select the relevant codes to describe your activities:

• 68100 – buying and selling of own real estate
• 68209 – letting and operating of own or leased real estate
• 68320 – property management

This next part is super important; shareholding and directorships. If you’re after the best buy-to-let limited company rates, we’d recommend no more than 4 directors and 4 shareholders.

For example, you could structure your company on the basis of 4 shareholders and 2 directors, or 2 shareholders and 2 directors, or 1 director and 2 shareholders; you get the picture.

More complex limited company structures with multiple shareholdings and directorships can still succeed in getting mortgages.

However, the application needs to be submitted carefully. Buy-to-let limited company lender criteria differs widely when it comes to shareholding and directorships.

We’d recommend getting in touch with a specialist (such as the team here at SPV Mortgages) before setting up your limited company.

How long does the company need to be trading before being able to apply for a limited company mortgage?

As the company is not considered a trading business, there are no specific time frames for how long it must be operating.

In theory, you could apply for a mortgage on the same day that your limited company is registered.

Once the business starts appearing on the Companies House website, you’re free to start applying!

In any case, your buy-to-let limited company must be set up before your mortgage application is submitted.

The company bank details can follow. However, setting up your company and your business bank account at the same time will help to prevent any delays with your buy-to-let limited company mortgage application.

How do you get a mortgage with a limited company?

Just like any other mortgage; you apply to lenders!

Once your limited company is up and running, you can start your mortgage application.

However, there’s certain mortgage lender criteria which are specific to limited companies; which you’ll need to keep in mind when putting together your application.

Here’s a quick overview of buy-to-let limited company mortgage criteria and how to give your application the best chances of getting accepted.

Are all property types compatible with limited company mortgages?

Most property purchases (including both houses and flats) can be funded via a limited company mortgage.

Standard residential properties attract the lowest mortgage rates.

All properties require surveyor consultation before a mortgage application will be accepted.

Some types of properties require more scrutiny than others – these include:

• HMOs (‘houses of multiple occupancy’) – residential properties with ‘common areas’ shared between multiple households
• MUBs (‘multi-unit blocks’) – self-contained flats which have been created by splitting a single property (block) into multiple units

Fortunately, if you’re interested in these types of properties, there are quite a few HMO/MUFB mortgage solutions being offered by certain limited company mortgage  lenders.

A quick heads up; in order to get the lowest buy-to-let limited company mortgage rates for multi-unit blocks, all services within each unit (such as electricity, gas, water etc) must be separate.

Each unit must be considered a self-contained property.

If one unit shares its services with another unit, the mortgage rates will be higher and you may incur light refurb costs to correct this at the time of selling.

Which types of properties are deemed suitable security for the mortgage?

Most property types are acceptable as collateral on a limited company mortgage loan.

This includes houses, flats, HMOs (houses of multiple occupancy) and in some instances multi-units.

Typically, a property which would be excluded as collateral for a personal buy-to-let mortgage will also be excluded for a limited company mortgage.

These include freehold flats (except in Scotland) and non-mortgageable properties (such as those without a kitchen, bathroom, or services such as gas, water or electricity).

If you think the property may be unusual, speak to a specialist SPV mortgage consultant before proceeding with an offer.

If one lender won’t accept the property as collateral, they may be able to help you find another lender who will.

Alternatively, they might be able to help you purchase via a bridging loan, a dedicated HMO/MUFB mortgage, or a second charge mortgage (with the latter using your own home or another property from your portfolio as collateral).

What’s the minimum personal income I’ll need to apply for a mortgage?

None – if you find the right lender! 

When it comes to SPV mortgages, some specialist lenders have no minimum personal income requirements for applications.

Of course, it helps to have an income of some kind; and lenders will typically expect you to either be employed or self-employed; but unlike a lot of personal buy-to-let mortgage lenders, there is no minimum £25,000 income.

What documentation will I need to provide when applying?

Most lenders will require the same kinds of documents for a limited company mortgage application as those you’d typically submit for a standard residential mortgage application.

Generally, you’ll be asked to include:

• Proof of identification and address
• Personal/business bank statements
• Proof of personal income
• Personal credit report

Some lenders may require additional documentation depending on your particular circumstances and your limited company mortgage specialist will advise you accordingly.

Can I still apply for a limited company mortgage if I have poor credit?

Firstly, it’s important to understand what ‘poor credit’ actually means in context.

If you have a couple of missed payments on personal credit commitments, such as credit card bills or loans, you should be able to pass lenders’ credit scoring processes and secure pre-approval for your limited company mortgage.

If your credit issues are more significant, you still might be able to apply for an SPV limited company buy-to-let mortgage.

However, the rates and fees on offer might be higher to reflect the increased risk of lending due to your credit profile.

Is previous landlord experience required when applying for a mortgage?

Previous landlord experience is not essential for securing an SPV mortgage, but you’ll need to be a residential homeowner to get access to the best rates.

Do I need to provide a personal guarantee?

Yes – in most instances.

The majority of lenders will require a personal guarantee signed by the limited company’s directors.

This ensures that if the company is unable to make payments on the mortgage loan, the company directors will personally take responsibility for the debt owed.

Please note: some lenders may require this guarantee to be processed by a different conveyancer than the one which finalises your property purchase, to avoid a conflict of interest.

Even if the limited company mortgage lender is happy for you to use the same conveyancer, some solicitors may refuse to do both for the same property purchase.

Do I need a specialist conveyancer for a limited company mortgage?

Yes.

Most buy-to-let limited company mortgage lenders have closed legal panels.

This means they only work with a handful of selected legal conveyancing partners.

Working with a selected legal firm from the mortgage lenders panel is known as dual representation. In this case, the legal firm works on behalf of both you and the lender.

However, separate legal representation is available with most buy-to-let limited company mortgage lenders.

It allows you to use your own legal firm while the lender uses their own.

Keep in mind, though; separate representation is double the cost, and in our experience, double the hassle!

Before you proceed with a recommended mortgage deal, check which legal firms the lender is happy for you to use.

How long will it take for my limited company buy-to-let mortgage application to be processed?

There are no differences in processing time between limited company mortgages and personal buy-to-lets.

Typically, you’ll hear back regarding your application in around two to four weeks depending on the lender.

Are buy-to-let limited company mortgage rates higher or lower than personal buy-to-let rates?

They’re higher; but this shouldn’t be the deciding factor of which ownership structure you go for.

Remember, if you personally own a buy-to-let, you’ll pay income tax on the rental income; which can be charged at 40% or even 45% rates depending on the amount you’re earning.

And, of course, individual investors can no longer offset all their letting expenses and 100% of their mortgage interest from their taxable income.

So, if you purchase a buy-to-let in your own name, and your income pushes you into the higher rate or even additional rate bands, you’ll be left with a pretty significant tax bill.

In contrast, a limited company structure offers 100% mortgage interest tax relief;  and you’ll only pay 19% corporation tax rate on the rental income left over.

So, in many cases, the number of pound coins left in your pocket after tax can vastly overshadow the higher mortgage rates you’ll pay for a limited company mortgage.

Of course, mortgage rates are important – but we consider net profit even more so!

How is buy-to-let rental cover calculated?

Rental cover or interest cover ratio (ICR) is the calculation used by buy-to-let lenders to work out how much they can afford to lend to you; based on the prospective rental income generated by the property you’re looking to purchase.

Let’s start with the bad news for personal buy-to-lets.

Since the introduction of Article 24 – the removal of mortgage interest tax relief deduction – buy-to-let rental cover calculations have tightened.

Buy-to-let mortgage lenders will generally expect to see that your rental income will cover at least 145% of your mortgage payments; assuming a mortgage interest rate of at least 5.5%.

Lenders want to ensure their customers have enough money coming in to pay their mortgage repayments and their tax bills.

In practice, this typically means offering smaller mortgage balances.

Great for minimising the amount of mortgage interest you’ll be charged, so you have more in the pot to pay the tax man; but it also leaves you having to stump up for a bigger deposit.

Not ideal.

There is a workaround. Five-year fixed rate mortgages offer less strict buy-to-let rental cover stress testing, so you can borrow more.

Of course, a five-year deal does offer a little less flexibility; and there’s always the chance you’ll end up paying more in the long run versus a two-year deal.

So, that’s ICR for personal buy-to-lets; but what about limited company mortgage rental cover stress testing?

As you now know, companies are taxed at much lower rates than individuals who personally own buy-to-lets.

That means limited companies are seen as less risky for lenders; and so buy-to-let limited company mortgages typically use a more flexible stress test calculation of 125% at 5% interest.

So the good news is, with a limited company mortgage, you can borrow more with a smaller deposit!

Here’s a quick example to illustrate the point:

Let’s use a rental income of £1,000 per calendar month

Personal – 145%@5.5% = £150,470

SPV – 125%@5% = £192,000

How much of a deposit will you need for your buy-to-let acquisition? Find out with our free buy-to-let mortgage deposit calculator. Why not give it a whirl?

How do you fund a limited company mortgage deposit?

There are multiple ways of funding your deposit for a buy-to-let limited company purchase. You can:

• Gift or loan funds to the limited company from a personal bank account.
• Release home equity from your main residence and either gift or loan the funds to the limited company.
• Release equity from an existing buy-to-let portfolio via a buy-to-let remortgage and either gift or loan to the company.
• Loan retained profits from an existing limited company you own to your buy-to-let limited company as an intercompany loan.

The latter has been considered a very tax-efficient method of utilising retained profits. Click here for more info on how to take advantage of intercompany loans.

Any intercompany loan transferred from an existing trading business to a buy-to-let  limited company, must be subject to an interest payment.

If the funds are provided to the company as a gift, there are no tax concessions.

However, if you loan the monies to your buy-to-let limited company, HMRC will consider this under director’s loan rules.

What are the minimum deposit requirements for buy-to-let company mortgages?

As with most things mortgage related, it depends on the lender.  some specialist mortgage lenders offer 85% loan-to-value deals.

Effectively, this means you only need a 15% deposit to move forwards with a property purchase.

These offers are available on both personal buy-to-lets and limited company buy-to-let mortgages.

However, keep in mind that lenders will charge higher interest rates to compensate for lower deposits.

The sweet spot to obtain competitive rates is with a 25% deposit. Interest rates don’t differ too much between 25% and the best 35% deposit rates.

Can you transfer property to a limited company?

Yes, but it might not be the best approach.

Effectively, you’ll have to sell the property to the limited company like any other typical property transaction.

This means the savings you’ll make from the lower corporation tax rates and mortgage interest tax relief may take an initial hit from capital gains tax and stamp duty charges.

(If you decide to take this route, it’s best to seek independent tax advice to establish what tax charges you will be liable for.)

Ask yourself: if you make the transfer, how long will it take for the rental income to fill in the CGT and SDLT-shaped hole in your wallet?

Five years or less is an acceptable timeframe to recover your money and start making a profit from your property again; especially if you’re planning on retaining the buy-to-let over the long term.

If it’s going to take longer than five years, you might be better off keeping the properties in your own name.

Which lenders offer buy-to-let limited company mortgages?

A growing number of lenders are offering limited company buy-to-let mortgage deals to buyers in the UK and expats.

They all have differing criteria for considering applications, and each lender offers different rates and fees.

These lenders include:

How do I overcome portfolio landlord restrictions?

A portfolio landlord is defined by any individual owning 4 or more buy-to-lets.

Lending money to individuals with several pre-existing mortgage debts is often a risky prospect; so lender criteria for portfolio landlords is more strict than non-portfolio criteria.

Existing buy-to-let properties are examined in terms of property value, mortgage debt, and rental income.

Each lender has slightly different metrics which they use to determine if an existing portfolio is high risk.

There are however some buy-to-let limited company mortgage lenders who ignore existing portfolios; enabling you to essentially build a second company-owned portfolio alongside your personal one.

Great news for portfolio landlords with low-performing buy-to-let properties!

What are the stamp duty land tax (SDLT) rates for buy-to-let limited companies?

Stamp duty land tax (also known as SDLT) still applies whether you purchase through a limited company or in your own name.

For buy-to-lets, you pay an extra 3% versus the standard residential stamp duty rate.

In 2020, the government announced temporary stamp duty cuts in response to the Covid-19 crisis. Further reduced rates were announced in the 2021 budget.

For buy-to-let investors who purchase a residential property before 1st July 2021, this means:

• You pay 3% stamp duty on the portion of your purchase price between £0 and £500,000.
• You’ll also pay 8% on any portion between £500,001 and £925,000.
• You’ll also pay 13% on any portion between £925,001 and £1.5m.
• Finally, you’ll pay 15% on any portion above £1.5m.

From 1st July to the end of September, the rates change again:

• The 3% band will be cut in half; you’ll pay 3% on the portion of your purchase price between £0 and £250,000.
• The 8% grows; you’ll also pay 8% on any portion between £250,001 and £925,000.
• The other bands remain the same as they were up to July 2021.

If you want to take advantage of the reduced stamp duty rates, the clock’s ticking.

After the stamp duty holiday finishes in October 2021, SDLT will return to previous rates. For buy-to-let investors who purchase a buy-to-let property after 30th September 2021, this means:

• You pay 3% stamp duty on the portion of your purchase price between £0 and £125,000.
• You’ll also pay 5% on any portion of your purchase price between £125,001 and £250,000.
• You’ll also pay 8% on any portion between £250,001 and £925,000.
• You’ll also pay 13% on any portion between £925,001 and £1.5m.
• Finally, you’ll pay 15% on any portion above £1.5m.

Confused? Don’t worry!
You can find out exactly how much stamp duty tax will be charged in seconds with our handy stamp duty calculator tool. Give it a try!

What about stamp duty for commercial property purchases?

Sadly, stamp duty rules still apply for commercial property. But there is a silver lining…

For commercial property purchases, stamp duty rates are much lower. If your purchase price is low enough, you might not have to pay any stamp duty fees at all!

• You pay zero stamp duty on the portion of your purchase price between £0 and £150,000.
• You’ll also pay 2% on any portion of your purchase price between £150,001 and £250,000.
• Finally, you’ll pay 5% on any portion above £250,000.

Commercial property SDLT is not included in the 2020/2021 stamp duty holiday, so there’s no rush to buy.

It’s also worth keeping in mind that VAT may be payable on commercial property sales. It’s always best to speak to a tax expert before putting down a deposit.

Can I avoid stamp duty with a limited company?

Generally speaking, a limited company won’t help you avoid stamp duty land tax on buy-to-let purchases.

You’ll usually pay the same amount of SDLT whether you’re buying through a company or in your own name.

The only difference is if you’re transferring limited company shares to your family, or selling your limited company shares to a new investor.

As you now know, shares can be transferred to family members at zero cost, so they’ll incur zero stamp duty.

Meanwhile, shares sold to new investors only incur 0.5% stamp duty on the cost of the shares themselves.

In both cases, there’s no stamp duty land tax to pay on the transfer of property ownership, since it’s technically not the properties which are changing hands; you’re simply changing the shareholdings of the company.

Also; if you’re transferring your own personally-held properties into an SPV, you may also be able to qualify for incorporation relief.

This offers savings on your SDLT and CGT bills for the property transfer; but it can be very tricky to obtain.

We’d always recommend speaking to a tax specialist before going ahead with a potential partnership incorporation.

Are there any other ways to avoid stamp duty?

There are still ways to mitigate stamp duty whether you’re a personal or limited company investor.

If you’re purchasing several properties at the same time, you can usually claim SDLT relief for multiple dwellings.

You may also be able to avoid stamp duty land tax if the property is unencumbered.

In other words, if you purchase the property in cash rather than borrowing money, you may be able to mitigate the SDLT on the transaction.

What are the current tax rates for buy-to-let limited companies?

Stop us if you’ve heard this one before…

At the time of writing, buy-to-let limited companies pay corporation tax on their rental profits at 19%.

And of course, buy-to-let limited companies receive full relief on mortgage interest and letting expenses.

Here’s something else to keep in mind; corporation tax is also paid on the profits from the eventual sale (or ‘disposal’) of your property.

However, you can claim relief on your corporation tax if you make a loss from the property’s sale.

Any profits extracted from the limited company as dividends are taxed at 7.5%, 32.5% and 38.1% depending on your marginal tax rate.

Bonus material

Is buy-to-let worth it?

So hopefully by now, you’re intrigued by the prospect of owning a BTL through a limited company – but as with any type of investment, planning is the key to getting the best returns.

Here’s a few things to consider before jumping in.

People will always need somewhere to live, but not everyone has a deposit available to purchase their own home.

According to the Office for National Statistics, the private rental sector has increased 63% from 2007 to 2017.

This is partly due to house price inflation and the financial difficulties faced by individuals looking to get on the property ladder.

It’s predicted that the sector will continue to grow in the UK over the coming years.

It’s difficult to confirm, but there are as many as 2+ million buy-to-let property owners in the UK.

Rents are typically pegged to inflation, which serves as a much better income stream than interest payable on cash deposits.

And don’t forget the capital appreciation….

What is the perfect buy-to-let investment strategy?

 It’s a very good question.

 Short answer; there isn’t one.

There’s only ‘what is the perfect buy-to-let investment strategy for me?’

With that in mind, let’s explore the two main investment factors; yield and capital appreciation.

Buy-to-let rental yield

How much money will you make from letting your property?

Of course, it all depends on the purchase price of the property, the rental income it can generate and the mortgage deal you eventually go for.

As a rule of thumb, most property investors are looking for yields around 5%.

To help establish if an investment in property is worthwhile, we’ve designed and built an essential tool kit for buy-to-let investors.

They’re all free to use, you can access them here.

This brings us nicely onto…

Buy-to-let capital appreciation

So here is where things get tricky.

Who knows if property values in Liverpool or Manchester will outstrip the average property growth rates across the UK in the next 5-10 years!

Is it simply a coin toss which determines where you’ll find above average future capital growth rates?

We think not.  

One thing you can do is research house price inflation over the last 5-10 years.

If the area is popular, the rate will be high; if it’s unpopular, the rate will be low.

You should also examine the characteristics of your buy-to-let – or you could say the properties of your property – which might make it attractive to buyers in the future.

For example, does the property have transport links close by?

Of course, a lot of us have been working from home full-time recently – we can’t imagine why…

But the light at the end of the Covid tunnel appears to be in sight; and it’s safe to assume that commuting will become commonplace again.

How big are the property’s rooms? Can a double/king-size bed fit inside the main bedroom with enough room to walk around it?

Is the property light and airy?

Can you add value to the property via modernisation? Perhaps there’s room for negotiation with the vendor as a result, too!

If it ticks all the boxes, you’ll hopefully see a great return on your investment when it’s time to sell it on.

Should I prioritise rental yield or capital growth as my main property investment strategy?

Again, it all depends on which one is right for you.

A rental yield strategy can provide far greater flexibility and better short-term cash flow. A capital appreciation strategy can help you build much larger savings in the long run.

Most investors aim for a balance of both rental yield and capital appreciation, but it’s your choice.

Where can I find the best rental yields?

Generally speaking, the best rental yields are found up north.

Here’s a quick list of the top ten provided from Zoopla:

Top 10 UK investor hotspots

How to maximise capital appreciation?

Geographic location has a large influence on the kind of capital growth you can expect in the long term.

Property in the South of the UK typically experiences higher capital value appreciation than properties in the north; although some areas such as Edinburgh and Glasgow are bucking this trend.

Buying repossessed properties at auction can provide handsome capital returns if you’re able to secure a bargain; but this approach often comes with risks.

It’s highly recommended that you seek a survey and valuation on the property in question before heading to auction.

You should also come prepared with a walk-away price and stick to it, or you’ll likely end up overbidding on the property and paying the price – literally and figuratively.

With auction properties, you should always check the property can actually be purchased via a mortgage first.

If the property is ‘unmortgageable’ for any particular reason (such as possessing structural problems which demand renovation before it can be safely inhabited), you may be able to purchase via a bridging loan instead.

Sometimes referred to as ‘auction finance’, a bridging loan provides faster and more flexible access to cash than a standard mortgage.

The upshot is, you’ll usually pay higher interest fees and/or endure much shorter repayment terms.

You’ll also need a plan for when the bridging loan period is up.

Some lenders offer ‘bridge-to-let’ packages, which follow up an initial bridging loan with a regular buy-to-let mortgage.

Are there Sharia-compliant limited company mortgage options?

Yes! 

Certain lenders offer halal ‘buy-to-let purchase plans’ (similar to the home purchasing plans available to residential buyers) which are available to SPV customers.

However, since Islamic mortgages are designed for purchasing a property without loan interest costs, the mortgage interest tax relief you’d get from a typical limited company mortgage isn’t applicable here.

Nevertheless, a Sharia BTL mortgage can still offer a better solution for ethically-conscious investors.

A specialist SPV mortgage broker will be able to connect you with lenders who offer halal limited company mortgage options.

What is emotional neutrality? How can a lack of emotional neutrality affect my property investments?

Humans are naturally emotional creatures; our hopes, fears, desires and passions drive almost everything we do.

We seek out and hold onto the things that make us happy, and avoid the things which make us unhappy.

Property investment is arguably one of the most emotionally charged forms of financial investment.

Ambition, doubt, anxiety, financial concerns, ideas around self-identity and even simply falling in love with a property or area can drive us to make hasty mistakes and unprofitable purchases.

Emotional neutrality is all about stripping away those emotional attachments and motivations.

Instead, emotionally neutral investors evaluate each potential property investment from a purely financial perspective.

Ask yourself these questions:

• Before you even go looking for properties, have you checked whether you’ll be eligible for an SPV limited company mortgage?
• Once you’ve found a property, is the condition of the property habitable and lettable?
• Have you used the essential property investor tool kit to assess if the investment will allow you to make a profit each month?
• Have you assessed how the location of your property will affect your return on investment and your ability to manage lettings?
• Will you be overstretching yourself financially?

By doing your research and taking the time to understand the risks instead of acting on your emotions, you’ll have a better idea of whether property investment is for you.

You’ll also save time and money by avoiding many of the pitfalls of first-time investors.

I don’t have any savings. Can I still purchase a buy-to-let?

Yes!

With remortgaging, a second charge mortgage or a secured loan, you can utilise the equity within your home or your parents’ home to fund a buy-to-let purchase, including the deposit, stamp duty, legal and mortgage fees.

You’ll want to weigh the cost of releasing the equity against the estimated ROI from the buy-to-let.

For example, if the cost of releasing equity is circa 2.5% to 4.5%, but the ROI on the buy-to-let is 5% to 8%, you’ll likely be able to make your costs back; plus you’ll gain from any capital appreciation on either property in the future.

Do I need to work with a specialist mortgage broker to secure an SPV limited company mortgage?

You don’t have to, but it’s certainly a good idea to speak with a specialist SPV mortgage broker before applying.

Firstly, they’ll have access to lenders who work exclusively with mortgage brokers; so you’ll get access to the best rates.

Secondly, they’ll have a good working knowledge of the criteria each lender uses when assessing applications, and can recommend you the best lenders for your particular circumstances; giving you the best chances of a successful application.

A specialist broker can save you a huge amount of time searching for the best deal and will have access to broker only lenders; plus they’ll process the application on your behalf.

The best brokers have access to exclusive deals not available elsewhere, and will even sort out all the necessary paperwork for you.

What’s the process of applying for a company mortgage?

Finally, let’s cover the whole process of applying for a buy-to-let company mortgage; from start to finish.

Here’s what you can expect from the procedure, and what you’ll need to do to secure your ideal buy-to-let property.

Step one: Tax advice

The first port of call is to go to a qualified accountant or tax consultant for tax advice.

Here, you can establish whether purchasing a buy-to-let will be more tax efficient through a limited company or not.

Once armed with this information, you can move to step two…

Step two: Mortgage pre-approval

Armed with all the tax knowledge you need, you should then enlist the help of a specialist limited company mortgage consultant.

After asking you a few questions to assess your current circumstances, they’ll be able to secure mortgage pre-approval with the lenders who are happy to consider lending to you.

They can also provide more information on the mortgage rates available to you and the kinds of fees you can expect to pay.

With this info, you can now proceed to step 3…

Step three: ROI (Rental Yield, Tax)

Return on investment is the critical factor when deciding whether a potential property purchase is worth your time and money.

Research the market in your chosen geographic location and across the UK to see what kind of ROI is potentially within your reach.

You’ll find that certain areas offer a higher ROI than others.

Remember to practice emotional neutrality when weighing up your investment options.

Don’t let things like sentimentality, fear or greed cloud your judgement; take an objective look at the numbers and use them to decide whether the investment is worth it.

Investigating and assessing return on investment is definitely a tricky part of the process, but if you do your homework you’ll have a better chance of securing a great long-term investment.

Our essential property investors tool kit can save huge amounts of time when evaluating a potential purchase – why not take a look?

Step four: Negotiations

Now it’s time to sit down with the seller’s estate agent and discuss the purchase price for the property you’re after.

This may seem daunting at first, but if you’ve already tapped into the emotional neutrality mindset as we discussed in step 3, you’ll have a much easier time negotiating for the price you want.

Again, make sure you’ve done your research before jumping into negotiations. Look at every detail of the property sale and the surrounding market to evaluate what it’s worth to you.

Step five: Offer accepted

Once your offer is accepted, get in touch with your limited company mortgage specialist; they’ll be able to start the application process for securing the best SPV limited company mortgage deal on the market.

Processing times from application to mortgage offer can take two to four weeks depending on the lender; but once you get your offer back from the lender, it’s on to step six…

Step six: The legal bit

Here’s where your conveyancer solicitor will finalise the purchase, by going through the paperwork and making all the necessary checks to ensure legal ownership of the property is passed onto your limited company.

Once everything is in order, they will move to exchange of contracts and set a completion date for the purchase.

Step seven: Keys

Upon completion, you will be handed the keys to your new property!

Now it’s time to start letting.

You can source tenants yourself if you prefer, but if you don’t have a lot of time to manage lettings or to keep on top of the latest regulations, you’ll be better off talking to a dedicated letting agent.

For more information on finding the right tenant for your letting, take a look at this guide on tenant sourcing from Landlords.org.uk.