Limited Company Mortgage

Can I use my limited company’s profits or assets to support my mortgage application?

It’s crucial to be clear from the outset here that with these questions there are two types of limited companies that people could be asking about.

There’s a trading limited company, which people often own within their profession or their day-to-day job. Then there’s a limited company set up specifically for property investment. We refer to that as an SPV, which stands for Special Purpose Vehicle.

To answer the question, you can use profits and assets to support a mortgage application from either one of those company set-ups. With a trading company that you’re working in on a day-to-day basis, you’re going to utilise those profits and assets by making personal drawings from that company as your personal income.

With an SPV, it’s more about displaying a profitable, sustainable property business. We use that as a business model to show the lender that you have a successful company. We show them the Loan to Value and profits on each property, plus the rental yield.

So there are two completely different entities, and the question could be asked for either one. But most of these questions are going to be driven towards the SPV set-up, for real estate purposes.

Are there any tax implications or considerations if I’m looking to obtain a mortgage via a limited company?

Yes. There are lots of considerations. A limited company with the purpose of real estate is a completely separate entity and taxed in its own right. It’s not linked to your personal tax situation.

Any profits that you make on rental income are subject to corporation tax rather than income tax rates. To give you an idea, at the time of recording in January 2025, corporation tax is 19%.

Corporation tax of 19% on the profits from your rental is already lower than the basic rate of tax, which is currently 20%. And it’s much lower than the higher rate of tax, which is 40%. So there are big differences in how the profits are taxed from owning a property personally versus via a limited company.

The big difference, however, is the tax relief. If you buy a property in a limited company, then you can actually offset the entire mortgage interest payment as an expense. If you own the same property personally, currently you can only offset about 20%. That makes a huge difference to the bottom line and the taxes you’re going to pay.

If you draw out profit from a limited company for your personal income, you’re paying yourself dividends. Those get dividend tax. You can look online and see what the current dividend tax rate is.

So rather than paying income tax like you would on your salary, you’re going to be paying dividend tax. If you sell the property through a limited company, there will be corporation tax on the gains. When you sell a property personally, capital gains tax will apply.

So many different taxes are going to come into effect, which means there are lots of considerations. It’s definitely worth sitting down with a tax adviser to go through your options, and collaborating with your broker at the same time to ensure you’re making the right decisions.

How can I improve my chances of getting approved for a mortgage through my limited company?

There are three big tips. First, deposit. The bigger the deposit, the easier it’s going to be across the board.

Next is credit status. You can secure mortgages with impaired credit, but it’s much easier to get a mortgage with a clean record – although achieving that is easier said than done. But if you’ve got a bad credit history or it’s clear that you struggle to pay your commitments at times, it’s always going to make life difficult when it comes to borrowing money.

The third area is professional guidance. Make sure you’re going to a broker who has a track record in that particular space. Limited company mortgages are an absolute minefield, to say the least. I’m pretty versed in that subject, and I still go around in circles. It really is a case by case basis. Trying to place it yourself without any experience, I’m afraid you’re going to fall down pretty quickly.

What are the typical interest rates and repayment terms for a mortgage via a limited company?

There isn’t really a typical limited company mortgage situation. On a residential basis, it might be easier to give a general answer. But limited company mortgages are all completely different.

I could say rates range from anything from 4% or up to 10% – but that’s a massive bracket. Or, that you could borrow from £50,000 up to half a million. It’s pretty irrelevant.

I would say that the average loan size for a Buy to Let through a limited company last year was probably around the £250,000 mark. We’re in the south-east of England. In this part of the country you’re looking at around £350,000, with maybe £250,000 on a loan.

We’re in January 2025, so if you’re listening to this far into the future, that could have changed. But at the moment interest rates are roughly 5%. That’s going to mean your interest repayments for that size of mortgage will be between £1,000 and £1,100 a month. That’s what I would say is typical if we averaged out all of the cases that we did last year.

Can I use a limited company to purchase a Buy to Let property?

Again, there’s probably a couple of angles to this question. Essentially, you can buy a property within either a trading business or an SPV, the special purpose vehicle. It’s normally advisable to keep the trading business and a property business separate from one another. That’s generally the rule of thumb.

But a quick chat with your broker and your accountant should steer you in the right direction. You can use either type to purchase a property.

How does being a guarantor for another person’s mortgage affect my eligibility for a mortgage via my limited company?

Hopefully, not at all. If it is affecting your ability to get a mortgage via a limited company, that probably means the person that you’re guaranteeing for has not paid their mortgage. Realistically, that’s the only time it would have an impact on a limited company, because that’s looked at as a separate entity.

The only way it’s going to have an impact is as a crossover, where a problem with that mortgage is impacting your credit status. If it’s all up to scratch, it shouldn’t really have any impact at all on affordability or eligibility for a limited company purchase.

Can I remortgage a property in my personal name into a limited company? What are the potential benefits?

At the moment, in January 2025, this is probably a question on lots of people’s lips, especially people that have property portfolios. They’re seeing the benefits we discussed earlier on with tax savings and are thinking, I’m missing out here, can I put them into a limited company?

It’s not really a remortgage, although people naturally think that it is. In fact, you’re selling your Buy to Let property into a limited company that’s in your name.

There’s lots of reasons why you might want to do it. Firstly, most prominently at the moment, it’s going to be tax efficient. But before I get into that, please understand it’s absolutely on a case-by-case basis. It’s something you should discuss with your accountant and your mortgage broker, and it will depend on your exact circumstances.

Even if you conclude that you shouldn’t do it, it’s definitely something to discuss and consider carefully.

Tax efficiency is the main factor, and as I explained earlier, it’s about offsetting the mortgage interest in your portfolio as an expense. This could add up to thousands of pounds in tax savings each year.

Let’s say a property creates a rental income of £2,000 and your mortgage payment is £1,000. So there’s £1,000 profit you’re making as a landlord. But if you own that property in your personal name, you can only offset 20% of the interest. That’s £200. From £2,000, you’d pay tax on £1,800. If you’re a high rate taxpayer, you pay 40% on £1,800, which is quite a lot of money.

If you have a limited company, you’d be able to offset all of the interest. If £1,000 goes on the mortgage, you make £1,000, and you’d only pay corporation tax on that, which is 19% or £190, which is much less than in your personal name.

That’s why people are entertaining this switch into a limited company – the tax savings. Next is portfolio growth. You might want to remortgage into a limited company, but at the same time you can raise capital on that property, which then allows you to put a deposit down on another purchase and grow your portfolio.

Another reason might be inheritance tax planning. Holding property within a limited company structure generally makes things easier when transferring it into different names. It can also mitigate inheritance tax, versus owning it personally. So long-term strategies can be a eason for people to look into ownership within a limited company rather than in personal names.

Similarly, in the long term, if you own lots of Buy to Let properties in your personal name, it becomes quite difficult from a mortgage point of view. Affordability starts to get restricted by the lender once you’re viewed as a portfolio landlord.

As soon as you own four or more Buy to Lets with a mortgage on them, at that point, the affordability becomes really tough and the deposits required become massive to secure lending.

People avoid that by putting property into a limited company, because it’s stressed in a limited company completely separately, making it easier to secure the next ones. If you’re looking to grow and expand a portfolio, I would recommend seriously considering the limited company route.

But before you start calling your broker and transferring all your properties into a limited company, make time for careful consideration – because this will all be subject to stamp duty.

It’s not a remortgage, it’s actually a sale. Although you have probably paid stamp duty already, if you sell property to a limited company, the limited company will get hit with stamp duty as well. That can be quite painful as that might mean a £5,000 or 10,000 tax bill – but you’ll see a break-even point.

If you do the numbers, and you’re saving £4,000 a year in tax, it won’t take long to recoup that money. And if you keep a property for 10 or 20 years, you’re going to be tens of thousands of pounds better off than if you had kept it in your personal name.

So again, this is why it’s very crucial that you sit down with someone and discuss it long term, rather than making snap decisions.

What happens to the limited company if I’m unable to make mortgage payments on time?

The property is likely to be repossessed. If you have a property repossessed and it’s inside a limited company, you can probably say goodbye to any future borrowing or any expansion within that portfolio.

Although a limited company is a separate entity, it still has a personal guarantee on it – because the lender won’t allow a company to be opened for the sole purpose of buying property, with no trading history. They rerquire that a personal guarantee is added onto that.

Realistically, you’re going to be hurt from a credit perspective as well. Obviously, you should try and avoid ever missing mortgage payments. As a worst case scenario, you should have a chat with the mortgage lender and your broker to make sure you’re doing everything you can to reduce the impact it’s going to have on you.

Are there any additional costs or fees associated with obtaining a mortgage via a limited company?

There generally will be more. They’re the same sorts of fees – broker fee, valuation fee, all the normal expected fees. Everything’s a little bit more complex through a limited company, so a broker is probably going to charge you a little more, because it’s going to take them twice as long.

You’re probably going to have to pay an accountant. You’re going to have a valuation. Even the interest rate is probably going to be slightly higher. But all these things are offset by the amount of money you save long term. Even if there’s £10,000 more in fees, it’s insignificant when you compare it to the savings you make versus buying in a personal name.

Every lender, broker and accountant are going to have different fees. You need to sit down specifically with each one of those, but it’s probably still going to be worth it.

How can a mortgage broker help? Have you got anything to add?

This area is probably as complex as it gets. I’ve done enough of these to know how difficult they are. If you instruct the wrong broker here, you’re going to waste a lot of time. And if you try it without instructing a broker at all, you’re really going to find it a struggle.

So make sure you select someone that specialises in this area. You can’t just walk into an estate agent and ask a broker to submit a limited company mortgage for you… Well, you can try. Let me know how it goes – it would be interesting to find out!

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.

THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE MOST BUY TO LET MORTGAGES.