Growing popularity for limited company buy-to-let

At Property Hawk Mortgages we have seen a rise in the number of limited company buy-to-let applications being submitted. So far in 2020, over 30 per cent of new mortgages each month have been in the name of a Special Purpose Vehicle (SPV) or trading company.

Popular mortgages for limited company buy-to-let (correct at date of publishing)

For standard properties:

Lender	Initial Rate	Type	Loan-to-value	Lender fee	Incentives
Bath BS	2.65%	2-year discount	70%	£1195
Paragon	2.95	2-year fixed	70%	1%	Free valuation
TMW	3.09%	5-year fixed	75%	£1995	Free valuation
Foundation Home Loans	3.24%	5 year fixed	75%	2%

For HMOs and multi-unit blocks:

Lender	Initial eate	Type	Loan-to-value	Lender fee	Incentives
Paragon	3.05%	2-year fixed	70%	1%	Free valuation
The Mortgage Lender	3.38%	2-year fixed	70%	2.5%
Masthaven	3.54%	2-year fixed	75%	2%
Zephyr Homeloans	3.99%	5-Year fixed	75%	1.5%

Limited company benefits

This comes as no surprise as there are several benefits to using a corporate structure for running a buy-to-let property business. Many landlords opt to use an SPV as it can be financially advantageous and tax efficient. Since the government announced the phasing out of mortgage interest tax relief by 2020, there are now more reasons to consider the limited company route to reduce tax liabilities.

In terms of buy-to-let mortgage options, limited company products can also provide advantages to landlords as the PRA regulations relating to rent stress tests for personal applications are not applicable (a rent stress test is the calculation that lenders use to determine how much they will lend to you).

It means that the rental calculations can be more achievable for SPVs – typically at 125 per cent at 5 per cent or at the pay rate for 5-year fixed rates – which may allow applicants to borrow more through a limited company.

Wide choice of mortgages

There is growing competition among lenders for limited company buy-to-let – we currently have around 30 different lenders on our panel - which means that there are some keenly priced rates available. Historically, limited company mortgages were considerably more expensive than personal name rates, but the gap is closing with some lenders now offering the same rates for both applicant types.

Setting up an SPV is a simple, cheap process which can be completed online within 24 hours via Companies House. Most lenders will lend to newly established SPVs providing they are set up for the sole purpose of letting and managing property. For this reason, it is important that the limited company is registered with the correct SIC code – normally 68100, 68209, 68320 or 68201.

Stamp Duty costs

For existing landlords who are considering transferring their properties to an SPV it is recommended that you seek professional tax advice before proceeding. Moving properties from a personal name to a corporate entity involves a sale and purchase transaction which means that Stamp Duty Land Tax and Capital Gains Tax is payable.

Stamp Duty costs may be a deterrent to large portfolio landlords, but there are circumstances where incorporation relief may be granted by the Inland Revenue if it can be demonstrated that the portfolio is run as a business partnership – again tax advice is recommended in this scenario.

We expect the proportion of buy-to-let mortgages arranged via a limited company will continue to grow over the next 12 months as landlords realise the financial ramifications of the changes to mortgage interest tax relief now that it has been completed phased out.

Property Hawk Mortgages is a specialist in the buy-to-let mortgage market. We have a wealth of knowledge and are dedicated to helping UK landlords find the best financial products and services available to them.

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Visit www.propertyhawkbtlmortgages.co.uk