Limited Company Buy to Let Mortgages

A limited company buy-to-let mortgage is a type of mortgage specifically designed for limited companies that wish to invest in residential properties for rental purposes. In this context, a limited company refers to a legal entity separate from its directors and shareholders, commonly used by property investors to manage their investments and benefit from certain tax advantages.

Here are some key points about limited company buy-to-let mortgages:

Legal structure: Limited company buy-to-let mortgages are only available to limited companies, which means that individual investors cannot access this type of financing. Setting up a limited company involves registering with the appropriate authorities and following the legal requirements for establishing and operating a company.

Property investment: The purpose of a limited company buy-to-let mortgage is to finance the purchase of residential properties for the purpose of renting them out. The properties can be single units, multiple units, or even entire apartment buildings.

Mortgage application: Applying for a limited company buy-to-let mortgage involves the company submitting the necessary financial information and documentation, similar to individual mortgage applications. Lenders typically assess the financial health of the company, its rental income potential, and the creditworthiness of the directors or shareholders.

Interest rates and terms: The interest rates for limited company buy-to-let mortgages may vary depending on the lender, the company’s financial profile, and the specific terms of the mortgage. Generally, interest rates for limited company buy-to-let mortgages tend to be slightly higher than those for individual buy-to-let mortgages. The mortgage terms, including the repayment period, will also be determined by the lender.

Tax considerations: One of the main reasons investors opt for limited company buy-to-let mortgages is the potential tax advantages. Limited companies may be able to claim tax deductions for certain expenses related to property ownership, which can help reduce the tax liability. However, tax rules can be complex and subject to change, so it is advisable to consult with a tax professional for specific advice.

The income requirements for a limited company buy-to-let mortgage can vary depending on several factors, including the lender’s criteria, the financial profile of the limited company, and the specific terms of the mortgage. Here are some key points to consider regarding income requirements:

Rental income: One of the primary factors lenders consider when assessing a limited company buy-to-let mortgage application is the rental income potential of the investment property. Typically, lenders will evaluate the property’s rental income and determine whether it is sufficient to cover the mortgage repayments. In some cases, lenders may require a minimum rental income-to-mortgage payment ratio, such as 125% or 145%, to ensure there is a buffer in case of rental void periods or other expenses.

Limited company financials: Lenders may also assess the financial health and stability of the limited company applying for the mortgage. This can include reviewing the company’s accounts, cash flow, profitability, and any existing debts or liabilities. They may require the limited company to have a certain level of profitability or financial stability before approving the mortgage.

Director’s income: In addition to rental income, lenders may consider the personal income of the directors or shareholders of the limited company. This is particularly relevant if the limited company is newly established and does not have an extensive financial track record. Lenders may assess the director’s income to ensure they have sufficient personal income to support the mortgage repayments, even if the rental income falls short.

Affordability assessment: Lenders will typically conduct an affordability assessment to determine if the limited company can comfortably afford the mortgage repayments. This assessment may take into account the rental income, the director’s income, any existing debts or financial commitments, and the projected expenses associated with the property investment.

It’s important to note that the specific income requirements can vary significantly between lenders. Some lenders may be more flexible than others, and they may have different criteria and policies regarding limited company buy-to-let mortgages. It is advisable to consult with your mortgage broker or speak directly with lenders to understand their specific income requirements and eligibility criteria.

The loan-to-value (LTV) ratio for a limited company buy-to-let mortgage can vary depending on several factors, including the lender’s policies, the financial profile of the limited company, and the specific terms of the mortgage. Here are some general guidelines regarding LTV ratios for limited company buy-to-let mortgages:

Standard LTV ratios: In many cases, lenders offer limited company buy-to-let mortgages with LTV ratios of up to 75%. This means the lender may be willing to finance up to 75% of the property’s value, and the borrower would need to provide a minimum deposit of 25%.

Lower LTV ratios: Some lenders may have more conservative policies and offer lower LTV ratios for limited company buy-to-let mortgages. For example, they might limit the LTV ratio to 70% or even lower. This would require a higher deposit from the borrower.

Higher LTV ratios: On the other hand, there may be lenders that are willing to offer higher LTV ratios for limited company buy-to-let mortgages, particularly if the limited company has a strong financial profile and a track record of successful property investments. These lenders might provide financing up to 80% or more of the property’s value, requiring a lower deposit.

Individual circumstances: It’s important to note that the LTV ratio offered by a lender can also depend on the individual circumstances of the borrower and the property. Factors such as the borrower’s creditworthiness, the rental income potential of the property, and the location and condition of the property can influence the lender’s decision.

Additional considerations: In some cases, lenders may have additional criteria or restrictions based on the type of property being financed. For example, they may apply lower LTV ratios for certain property types, such as new builds or houses of multiple occupation (HMOs).

It’s crucial to keep in mind that these guidelines are general, and lenders may have different policies and criteria when it comes to limited company buy-to-let mortgages. It is advisable to consult with your mortgage broker or speak directly with lenders to understand their specific LTV ratios and eligibility requirements for limited company buy-to-let mortgages.

Yes, it is possible to obtain a fixed rate on a limited company buy-to-let mortgage. A fixed-rate mortgage means that the interest rate remains unchanged for a specific period, typically ranging from 2 to 10 years, regardless of any fluctuations in the broader market interest rates.

Here are some key points regarding fixed-rate limited company buy-to-let mortgages:

Availability: Many lenders offer fixed-rate options for limited company buy-to-let mortgages. However, the availability and specific terms of fixed-rate products can vary between lenders, so it’s essential to research and compare offerings from different lenders.

Fixed-rate period: The fixed-rate period determines how long the interest rate remains unchanged. During this period, your mortgage repayments will remain the same, providing stability and predictability for budgeting purposes. Once the fixed-rate period ends, the mortgage usually reverts to the lender’s standard variable rate (SVR) or may offer the opportunity to remortgage.

Interest rate options: Fixed-rate mortgages typically offer different interest rate options within the fixed-rate period. For example, you may have the choice of a 2-year fixed rate, 5-year fixed rate, or other options depending on the lender. The interest rates offered will depend on various factors, such as the lender’s rates, market conditions, and the financial profile of the limited company.

Benefits: A fixed-rate mortgage provides protection against potential interest rate increases during the fixed-rate period. It allows borrowers to plan their finances with certainty, knowing that their mortgage repayments will remain the same. This can be particularly advantageous when dealing with rental income and managing cash flow.

Considerations: It’s important to carefully consider the fixed-rate period when choosing a limited company buy-to-let mortgage. Longer fixed-rate periods may provide greater stability but could have higher interest rates compared to shorter fixed-rate periods. Additionally, some fixed-rate mortgages may have early repayment charges or other penalties if you decide to refinance or repay the mortgage early, so it’s crucial to review the terms and conditions.

When considering a fixed-rate limited company buy-to-let mortgage, it is recommended to seek advice from your mortgage broker or speak directly with lenders to understand the available options, interest rates, and terms specific to your circumstances.

Discover the expertise and personalised service you need for your limited company mortgage with Argyll Drummond. Benefit from our in-depth knowledge of the market and our commitment to finding tailored solutions for your investment goals.

Contact us today to explore how we can help you navigate the complexities of limited company mortgages and secure the financing you need. Choose Argyll Drummond for a seamless mortgage experience.