“Incorporations are being used for a wide range of buy-to-let investment vehicles including HMOs, MUFBs, commercial properties, new build developments and former council houses.”
Limited company buy-to-let has come a long way in a relatively short space of time. The concept of buying and/or holding property in a limited company came to prominence in the 2010s after buy-to-let landlords were repeatedly targeted by Chancellors of the Exchequer – most notably George Osborne.
Using a limited company really gained traction between 2017 and 2020 when full tax relief on mortgage interest for landlords who own property in their names was phased out. Before then, landlords could subtract mortgage interest costs from their rental income when calculating profits and claim relief at their personal rate of income tax. Since then, claims are restricted to the 20% basic tax rate, meaning landlords who pay the higher or additional rate have to deal with higher costs. In comparison, limited company landlords can offset 100% of mortgage interest against profits.
According to Hamptons, 74% of buy-to-let purchases in England and Wales in 2023 were via a limited company, up from 68% in 2022 and 41% in 2015. Incorporations are being used for a wide range of buy-to-let investment vehicles including HMOs, MUFBs, commercial properties, new build developments and former council houses.
As a consequence of the rising demand for limited company buy-to-let mortgages, there are many specialist lenders who now operate in that space. It is a moot point, however, as to how committed some of these providers actually are, with limited company buy-to-let appearing to be an afterthought rather than a product that they are serious about.
At Mercantile Trust, our mission is to deliver alternative solutions to those provided by the mainstream, as we seek to ‘serve the underserved’, and this is no different with our limited company buy-to-let proposition. We offer smaller limited company buy-to-let mortgages than most of the other players in the market – from just £10,000, all the way up to £1,000,000. We lend up to 75% LTV, with no minimum income requirements, 125% rental coverage with top slicing available.
Limited company buy-to-let is available for Properties in England, Wales, Scotland, Northern Ireland, and that includes those of non-standard construction too.
We also provide second charge limited company buy-to-let mortgages. They can be used to help those landlords seeking to raise capital but unsurprisingly less than keen to lose the preferential rate on an existing first charge loan. A second charge enables them to keep their existing mortgage in place but still tap into much-needed equity by taking out a second charge buy-to-let loan on any or multiple properties within the portfolio.
The money can then be used to carry out any refurbishment work, pay off a tax bill, be used for other business purposes or the purchase of another property. In addition, the streamlined underwriting process means funds are typically released within three to four weeks, sometimes even within days, which makes the whole process faster than remortgaging.
Unlike most buy-to-let lenders, Mercantile Trust is doing its best to tackle affordability with limited company buy-to-let remortgaging, as we allow ‘top-slicing’. We let landlords utilise a certain amount of their personal, earned income to make up for a shortfall in projected rental returns when applying for a mortgage. If there is not enough or any surplus from a portfolio then we can look to use earned income within our calculations, subject to a full Income and Expenditure analysis.
Finally, our limited company lending isn’t just about buy-to-let term mortgages. We offer bridging finance for limited company vehicles, with loans from £25,000. Much the same as second charge buy-to-let, they can help landlords with capital raising without having to touch the existing first charge, limited company buy-to-let provision.
At Mercantile Trust, our mission is to offer alternative solutions in those areas restricted by traditional lenders, and limited company buy-to-let, despite being a relatively new phenomenon, is nevertheless a pretty conservative arena. We take no notice of this, and seek to help landlords realise their goals, regardless of what lending vehicle they use.
