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Mortgages

Buy to Let and Limited Company Mortgages

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Whether you are looking to expand an existing rental property portfolio or are thinking of becoming a landlord for the first time, investing for rental income or potential capital appreciation, you will need to take out a buy-to-let mortgage rather than a standard residential mortgage.

A buy to let (BTL) mortgage is specifically designed for people who own a property to rent out and they have different criteria and features to those for residential use.

Common features of BTL mortgages

Interest Only

The majority of buy to let mortgages are arranged on an interest only basis, meaning that the debt is not reducing over the term of the loan. Some providers will allow a repayment basis, although this can result in stricter terms.

Minimum deposit

Most BTL deals require a minimum deposit of 25%, however with our specialist knowledge we can often secure deals with a lower deposit of only 15% or 20%.

Affordability assessment

Borrowing capacity is traditionally based on the amount of rental income the property is expected to achieve. However, some lenders will incorporate personal income along with rental when assessing borrowing capacity which can result in a higher loan amount.

Minimum income requirements

Many lenders will require a minimum personal income of £25,000, however some lenders have no minimum income requirements.

Rates available

Typically buy to let rates are higher than on residential loans but the gap has narrowed over the last few years.

Individual or limited company borrowers

Buy to let mortgages can be arranged in individual names or for limited companies, but not every lender will accept both and different criteria applies.

House in Multiple Occupation (HMO)

Properties are classed as a HMO if rented out by at least 3 people who are not from one household/family and share facilities. If you want to rent out your property as a house in multiple occupation in England or Wales you must contact your council to check if you need a licence. Furthermore some lenders are unwilling to offer BTL mortgage on a HMO property, an advisor will be able to point you in the right direction.

Speak to a specialist buy to let mortgage broker

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Limited Company Buy To Lets

Your accountant will be able to tell you if it makes sense for you to make all new purchases of buy to let property through a limited company.

Buy to let lenders which offer mortgages to limited companies usually require the limited company to be an SPV (Special Purpose Vehicle) with the appropriate SIC Codes.

In the mortgage world, a Special Purpose Vehicle limited company is a company which is set up just to hold property and do nothing else. Buy to let lenders offering mortgages to corporate vehicles mostly prefer SPVs to trading limited companies because they are easier and quicker to understand and underwrite.

Many more landlords are now purchasing rental property via an SPV limited company because it is generally more tax efficient.

Buy to let mortgages for non-SPV trading limited companies

If your company trades in something other than property you can still get a buy to let mortgage; however, your options are restricted to fewer specialist lenders.

If the company has traded in another field in the past, some extra lenders will also consider lending to the company as long as this is historic, the company has the right SIC codes and the accountant can confirm the company will only be letting property going forwards.

Interest Only or Repayment BTL mortgage.

When purchasing a buy to let property investors have different goals in mind, some look to capital growth of the investment over the longer term, others look towards income either now or upon retirement. 

If looking for income now then having an interest only mortgage means paying lower payments thus increasing the surplus after your mortgage payment and other costs and taxes have been covered.

If looking at income in retirement it could well be an initial repayment mortgage is best suited to reduce the debt as much as possible with a change to interest only later on in life.

If looking for capital growth, then repayment should be considered as it means you will have more of the sale proceeds available upon sale.

The choice will be for you to decide but our buy to let specialist will be able to guide you through the decision-making process.

Do high street lenders offer BTL mortgages?

Some high street lenders do offer BTL loans but this is a specialist marketplace and their criteria is typically far more restrictive. For example, most will not lend to limited companies or consider properties other than a single dwelling.

Our independent advisers look across both the high street and the specialist BTL lenders to ensure you secure the best deal.

For those who already have companies and are wondering whether this would meet the SPV criteria, here is what the lenders like to see:

  • SIC code for letting property
  • No sign of any revenue through the company of anything other than letting property

What is a SIC code?

The Standard Industrial Classification of Economic Activities (SIC) is used to classify business establishments by the type of economic activity in which they are engaged.

How do you get a SIC code?

You will need a SIC code when filing the SPV’s Annual Return with Companies House. To choose a SIC code, use the official Condensed SIC list on the Gov.uk website. Most investors require a SIC code from Section L: Real estate activities.

The importance of reviewing your mortgage deal

A buy to let property is an investment and it is essential to ensure that you have the most competitive mortgage deal available, thus maximising your return.

BTL mortgage rates are extremely competitive at present and re-mortgaging to a cheaper deal could result in significantly more profit, but as with all mortgage types, it is imperative that all associated costs are taken into consideration. At Nicholson Brown our advisors will look at the overall cost on your behalf and make our recommendations accordingly.

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