Unsurprisingly, this increase in demand is fuelling an extensive range of products from mortgage lenders keen to monopolise, but there are pitfalls to these deals.
Telegraph Money explains how buy-to-let mortgages for limited companies differ from traditional buy-to-let products, and what those taking them out need to be aware of.
How are limited company buy-to-let mortgages different?
The biggest distinction is that the entity borrowing the mortgage is a company rather than an individual – although company directors will still need to provide guarantees, and undergo affordability and credit checks.
You might find you’re able to borrow more: “Affordability calculations are more flexible via a limited company, which can allow borrowers to secure a bigger loan amount than if they were a higher-rate taxpayer borrowing in their personal name,” said Mr Abbs.
This is because the rental stress-testing is more favourable to higher-rate taxpayers buying via limited companies, due to the mortgage interest relief they receive.
Where landlords with mortgages in their own name can only claim a 20pc tax credit on the mortgage interest they pay, those operating via a limited company can offset the full amount.
“[The rental stress testing] will be up to 145pc for a personal name buy-to-let, when the applicant is a higher-rate taxpayer (or even deemed to be when considering gross rental income), whereas with a limited company purchase, this is always at 125pc,” said Justin Whitelock, the founder of mortgagelondon.com.
A higher-rate taxpayer can therefore borrow more when they buy as a limited company.
Mr Whitelock uses the example of a £300,000 property with an expected rental income of £1,200pcm.
Example:
A higher-rate taxpayer buying in a personal name with a five-year fixed-rate mortgage at 5pc interest rate: £198,000 borrowing x 145pc (1.45) x 5pc (0.05) / 12 = £1,196 monthly rental income needed to cover the loan.
Limited company purchase with a higher-rate taxpayer with a five-year fixed-rate deal at 5pc interest rate: £230,000 borrowing x 125pc (1.25) x 5pc (0.05) / 12 = £1,198 monthly rental income needed to cover the loan.
How do costs compare?
The mortgage interest when you own a property as a limited company is tax-deductible, but traditionally mortgages for limited companies have been more expensive with higher rates than those held in personal names. The difference could be so significant that it even eroded any tax advantages.
With the increase in limited companies, however, the gap between these two mortgage types has narrowed considerably, although limited company mortgages are still pricier.
“Limited company rates are often higher, anything up to 0.5pc more than equivalent personal-name buy-to-let products. Also, arrangement fees can be slightly higher, so generally there is a slight premium for purchasing through a limited company,” said Mr Whitelock.
“In addition, the legal work can be more complex, so potentially conveyancing fees can be higher.”
The mortgage rate is only one part of the decision of whether or not to buy a property as a limited company or in your personal name – there may be other considerations such as capital gains tax, stamp duty and succession planning – but, with rates much more competitive than they were, the cost of the mortgage is now unlikely to be a big factor in this decision.