I'm looking to buy my second buy-to-let. If I use a limited company, how does getting a mortgage differ from a personal one? Are the interest rates significantly higher, and what are the typical deposit requirements for new SPVs?
Quick Answer
Obtaining a buy-to-let mortgage through a limited company (SPV) differs from a personal mortgage due to distinct lending criteria, generally higher interest rates, and larger deposit requirements, typically 25-30%.
## What are the key differences between a limited company and a personal buy-to-let mortgage?
Obtaining a buy-to-let (BTL) mortgage through a limited company, specifically an SPV (Special Purpose Vehicle), involves distinct criteria compared to a personal mortgage due to differing tax regulations and lender risk models. The primary financial incentive for limited company ownership stems from Section 24 of the Income Tax Act 2016, which means individual landlords cannot deduct mortgage interest from rental income when calculating taxable profit since April 2020. Conversely, limited companies can still deduct finance costs, reducing their Corporation Tax liability. However, this structure usually entails higher lending costs and different underwriting focused on the company's financials and director's experience.
## Are interest rates significantly higher for limited company buy-to-let mortgages?
Yes, limited company BTL mortgage interest rates are typically 0.5-1.0 percentage points higher than those for personal BTL mortgages. While typical personal BTL rates range from 5.0-6.5% for a 2-year fixed term, limited company rates often start from 5.5-7.5%. Lenders perceive slightly higher risk with corporate structures, which translates to increased pricing. This difference incorporates the additional administrative burden on the lender and the specific nature of corporate lending. For example, a £200,000 mortgage at 5.5% personally would cost £916.67 in interest per month, whereas at 6.25% through a company, it would be £1041.67 monthly.
## What are the typical deposit requirements for new SPVs?
For new Special Purpose Vehicles (SPVs), deposit requirements for BTL mortgages are generally higher than for personal applications, typically ranging from 25% to 30%. This means lenders commonly offer a maximum Loan-to-Value (LTV) of 70-75%. For example, on a £200,000 property, a 25% deposit requires £50,000, leaving a mortgage of £150,000. Lenders often require the SPV to be set up solely for property investment, with the director(s) having previous landlord experience, rather than being a brand new entity with no history. Underwriting focuses on the rental income's ability to cover the mortgage, typically applying a stress test of 125% rental coverage at a notional rate of 5.5%.
## What are the tax implications of limited company ownership versus personal ownership?
Limited company ownership enables the deduction of mortgage interest from rental income before Corporation Tax is calculated, whereas individual landlords only receive a basic rate tax credit on mortgage interest. Corporation Tax is 19% for profits under £50k, rising to 25% for profits over £250k. Distributions to shareholders (dividends) are then subject to personal income tax. By contrast, an individual landlord’s rental income is added to other personal income and taxed at their marginal income tax rate (e.g. 20%, 40%, or 45%). Capital Gains Tax (CGT) on residential property for basic rate taxpayers is 18%, while higher/additional rate taxpayers pay 24%; for limited companies, gains are subject to Corporation Tax. This means limited company vs. personal ownership requires detailed analysis from a tax perspective to determine the most efficient structure given an investor's overall financial situation and goals for future growth and profitability, especially with multiple BTLs. Considering rental yield calculations alongside tax efficiency is crucial in this decision.
## Investor Rule of Thumb
Assess limited company BTL financing by comparing the increased mortgage costs against the Corporation Tax deduction benefits, ensuring the higher deposit and rates align with your long-term investment strategy and cash flow expectations.
## What This Means For You
Most landlords moving beyond their first property will consider a limited company structure for tax efficiencies. The decision should balance the higher lending costs and administrative burden with the potential Corporation Tax benefits. If you want to understand the exact calculations for your portfolio and how 'BTL investment returns' are impacted by different structures, this is precisely what we analyse inside Property Legacy Education.
Steven's Take
The shift away from personal ownership for new buy-to-let properties is a direct response to Section 24. While limited company mortgages do come with slightly higher rates and larger deposit requirements, often 25-30%, the ability to deduct mortgage interest from rental income before Corporation Tax at 19% (for profits under £50k) can significantly outweigh these additional costs, especially for higher-rate taxpayers. Ensure your SPV is set up correctly and lenders are comfortable with your experience. Look at the total cost of ownership including tax to make your decision, not just the headline interest rate.
What You Can Do Next
Contact a mortgage broker specializing in limited company buy-to-let mortgages (search 'limited company BTL mortgage broker' on unbiased.co.uk) to compare current rates and deposit requirements for your specific circumstances.
Consult a property tax accountant (find one via ICAEW.com or ACCA.org.uk) to model the tax implications of both personal and limited company ownership for your financial situation, considering income tax and Corporation Tax rates.
Review your investment strategy and cash flow projections to ensure the higher deposits and interest rates for limited company mortgages (typically 0.5-1% higher) align with your long-term profitability goals.
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