Buy-to-Let Mortgages

Loan-to-Value (LTV) Ratios, Standard BTLs

• Standard  LTV: Typically 60%–80%, meaning borrowers need a 20%–40% deposit (e.g., £40,000–£80,000 for a £200,000 property).
• Higher LTV: Up to 85% in some cases, particularly for experienced landlords or properties with strong rental yields. Higher LTVs often carry higher      interest rates.
• Lower LTV: Offers better rates due to reduced lender risk (e.g., 60% LTV at 3% vs. 80% LTV at 4.5%).

Interest Rates

• Range: 3%–6% per annum (as of June 2025), depending on LTV, property type, and borrower profile.
• Fixed-Rate: Locked rates for 2–10 years (e.g., 3.5% for 5 years) provide payment stability, ideal for budgeting rental income.
• Variable/Tracker: Rates track the Bank of England base rate (e.g., base rate + 1.5%), offering potential savings but with fluctuation risks.
• Discounted: Temporary reductions (e.g., 1% off the lender’s standard variable rate) for an introductory period.
• Corporate vs. Individual: LTDs, LLPs, or SPVs may face slightly higher rates (e.g., 3.8%–6%) due to perceived risk but benefit from tax advantages.

Repayment Structures

• Interest-Only: Most common for BTL mortgages, where monthly payments cover only interest, and the principal is repaid at the end of the term (e.g., via property sale or refinancing). This maximizes cash flow for landlords.
• Capital and Interest: Less common, but available for borrowers seeking to reduce the loan balance over time.
• Flexible Repayments: Some lenders allow overpayments (e.g., 10% of the loan annually) without penalties to reduce interest costs.

Loan Terms

• Standard: 5–30 years, with 25 years being typical. Longer terms lower monthly payments but increase total interest.
• Short-Term: 1–5 years for bridging-style BTL mortgages, often used for property purchases requiring quick funding or renovations before refinancing.

Fees

• Arrangement Fees: 1%–2% of the loan amount (e.g., £2,000–£4,000 for a £200,000 loan), paid upfront or added to the loan.
• Valuation Fees: £300–£2,000, depending on property value and complexity.
• Legal Fees: £500–£2,000 for conveyancing and loan agreements.
• Broker Fees: 0.5%–1% of the loan or a flat fee (£500–£2,000).
• Early Repayment Charges (ERCs): 1%–5% of the loan if repaid early during a fixed-rate period.

Underwriting Criteria

• Rental Income: Lenders assess the Interest Coverage Ratio (ICR), requiring rental income to cover 125%–145% of mortgage interest (e.g., £1,250–£1,450 rent for £1,000 interest). For HMOs or portfolio landlords, higher ratios (e.g., 150%–200%) may apply.
• Borrower Income (Individuals): Some lenders require a minimum personal income (e.g., £25,000 annually) for first-time landlords, though rental income is the primary focus.
• Business Financials (LTDs/LLPs/SPVs): Lenders review accounts, cash flow, or projections for corporate borrowers.
• Credit History: Strong credit scores improve terms; adverse credit (e.g., CCJs) may require specialist lenders.
• Experience: First-time landlords may face stricter criteria; portfolio landlords (4+ properties) need stress-tested portfolios.

Property Type: Must be lettable (e.g., standard houses, flats, HMOs, or multi-unit blocks). Non-standard properties (e.g., ex-local authority flats) may require specialist lenders. 

Mortgages for LTDs, SPVs, and LLPs are commercial or buy-to-let (BTL) mortgages tailored for business entities rather than individuals. These loans are used to purchase, refinance, or transfer properties into the ownership of the company or partnership. Unlike personal mortgages, these are underwritten based on the financial health of the entity and the rental income potential of the property (for BTL properties).

Key Features of LTD and LLP Mortgages

• Loan Purpose: Used to acquire residential or commercial properties, refinance existing properties, or transfer properties from personal to corporate      ownership.
• Eligibility: Available to limited companies (including SPVs) and LLPs registered in the UK. Some lenders may require the entity to have a specific purpose (e.g., property investment for SPVs).
• Loan-to-Value (LTV): Typically ranges from 60% to 85%, depending on the lender, property type, and borrower’s financial profile.
• Interest Rates: Often higher than personal BTL mortgages due to perceived risk, with rates ranging from 3% to 7% (fixed or variable). Some lenders offer      interest-only options to maximize cash flow.
• Term Length: Usually 5 to 30 years, depending on the lender and loan structure.
• Security: The property acts as collateral, and some lenders may require personal guarantees from directors or partners, especially for newly formed      entities.
• Regulation: These mortgages are typically unregulated, as they are taken out by business entities rather than individuals, though some lenders follow      regulated mortgage guidelines for transparency.

Underwriting Criteria

• Entity Financials: Lenders assess the company’s or LLP’s financial statements, including profit and loss, balance sheets, and cash flow. For new SPVs,      lenders may rely on projections or the directors’ personal financials.
• Rental Income: For BTL properties, lenders calculate the Interest Coverage Ratio (ICR), typically requiring rental income to cover 125%–150% of the      mortgage interest.
• Directors/Partners: Lenders may review the credit history, experience, and income of directors (for LTDs) or partners (for LLPs), especially for smaller entities.
• Property Type: Residential, commercial, or mixed-use properties are eligible, but terms vary based on property type and tenant profile.

LTDs, SPVs, and LLPs are attractive vehicles for holding property due to their tax advantages, liability protection, and flexibility for portfolio owners. Below are the key reasons they are popular:

Tax Advantages

• Corporation Tax vs. Income Tax: Limited companies are subject to corporation tax (currently 19%–25% in the UK, depending on profits) on rental income, which is often lower than personal income tax rates (up to 45% for higher-rate taxpayers). LLPs are tax-transparent, meaning profits are      taxed as personal income for partners, but this can still be advantageous for tax planning.
• Mortgage Interest Relief: Since 2017, individual landlords in the UK have faced restrictions on claiming mortgage interest as a tax-deductible expense.      However, limited companies and LLPs can deduct mortgage interest in full, reducing taxable profits.
• Capital Gains Tax (CGT): When selling properties, limited companies pay corporation tax on gains, which is typically lower than individual CGT rates (18%–28%). LLPs pass gains to partners, who pay CGT individually, but careful structuring can optimize tax outcomes.
• Dividend Planning: For LTDs, profits can be distributed as dividends, allowing shareholders to manage their tax liabilities strategically.

Liability Protection

• Limited Liability: Both LTDs and LLPs limit personal liability for business debts,  protecting directors’ or partners’ personal assets (unless personal      guarantees are required).
• Ring-Fencing Assets: SPVs isolate property investments from other business activities, reducing risk if one property or business fails.

Flexibility for Multiple Investors

• Shared Ownership: LLPs allow multiple partners to have an interest in the property portfolio, with profits and losses distributed according to the      partnership agreement. LTDs allow multiple shareholders, making it easier to pool capital.
• Succession Planning: Corporate structures simplify transferring ownership (e.g., through share transfers in LTDs) compared to individual property      ownership, aiding estate planning.
• Scalability: LTDs and LLPs are ideal for portfolio owners looking to scale, as they streamline management of multiple properties under one entity.

Operational Benefits

• Professional Image: Holding properties in a corporate entity can enhance credibility with lenders, tenants, and business partners.
• Access to Finance: Lenders are increasingly offering tailored products for LTDs, SPVs, and LLPs, recognizing their growing popularity among professional landlords.

Transferring properties from personal ownership to an LLP or SPV is a common strategy for portfolio owners seeking tax efficiency or liability protection. Mortgages can facilitate this process by providing funds to “purchase” the property from the individual or refinance existing debt.

Process of Transferring Property

• Valuation: The property is valued to determine the sale price, which must be at market value to comply with HMRC rules and avoid tax penalties.
• Mortgage Application: The LTD or LLP applies for a mortgage to finance the purchase of the property from the individual owner. Lenders assess the entity’s financials, rental income, and the property’s value.
• Legal Transfer: A conveyancer handles the legal transfer of the property title to the LTD or LLP. This may involve stamp duty land tax (SDLT) or land and buildings transaction tax (LBTT) in Scotland, depending on the transaction value and jurisdiction.
• Refinancing Option: If the property is already mortgaged, the entity may refinance the existing loan into a new mortgage under the LTD or LLP.

Key Considerations for Property Transfers

• Tax Implications:
  • Stamp Duty Land Tax (SDLT): Transferring property to an LTD or LLP may trigger SDLT, especially if the property has a mortgage or is sold above a       certain threshold. For LLPs, SDLT may be reduced if partners retain their proportional interest.
  • Capital Gains Tax (CGT): Selling a property to an LTD or LLP may trigger CGT for the individual seller, as it’s treated as a disposal at market value.
  • VAT: LLPs and LTDs involved in commercial properties may need to consider VAT implications.
• Lender Requirements: Some lenders specialize in transfer mortgages and may offer favorable terms for SPVs or LLPs. They may require a business plan or evidence of rental income.
• Costs: Legal fees, valuation costs, and potential tax liabilities should be factored into the decision to transfer.
• Mortgage Availability: Many lenders offer products specifically for property transfers, with LTVs up to 75%–80% and terms tailored to the entity’s      financial profile.

Example Scenario

A landlord owns three rental properties worth £900,000 with an outstanding mortgage of £400,000. To reduce tax liability, they transfer the properties to an SPV. The SPV applies for a £600,000 mortgage to “purchase” the properties from the landlord, paying off the existing £400,000 mortgage and providing £200,000 in cash to the landlord (subject to CGT). The SPV’s rental income covers the mortgage interest, and the company deducts interest as a business expense, reducing corporation tax.

• Tax Efficiency: Lower corporation tax rates and full mortgage interest relief for LTDs; flexible profit distribution for LLPs.
• Liability Protection: Personal assets are safeguarded (subject to personal guarantees).
• Scalability: Easier to manage and expand large portfolios under one entity.
• Access to Finance: Growing availability of tailored mortgage products.
• Flexibility: Multiple investors can share ownership, and succession planning is simplified.

Disadvantages

• Higher  Mortgage Costs: Interest rates and fees are often higher than personal BTL mortgages.
• Tax Complexity: Transfers may trigger SDLT, CGT, or other taxes, and ongoing tax compliance (e.g., corporation tax returns) is required.
• Personal Guarantees: Directors or partners may need to provide personal guarantees, reducing liability protection.
• Administrative Burden: Running an LTD or LLP involves additional paperwork, such as filing accounts with Companies House.
• Lender Restrictions: Some lenders limit LTVs or impose stricter criteria for new entities or complex property types.

Specialist lenders, high-street banks, and private banks offer mortgages for LTDs, SPVs, and LLPs. Examples include:

• Specialist  Lenders: Paragon, Precise Mortgages, and LendInvest offer tailored BTL products for corporate entities.
• High-Street Banks: Some banks, like Barclays and NatWest, provide commercial mortgages for LTDs and LLPs.
• Private Banks: For high-net-worth clients, private banks offer bespoke solutions with flexible terms.

Lenders may require:

• A minimum of 6–12 months of trading history for LTDs or LLPs (though SPVs can often bypass this if directors have property experience).
• A strong rental yield to meet ICR requirements.
• Evidence of a clear business purpose (especially for SPVs).

• Seek Professional Advice: Consult a tax advisor or accountant to assess the tax implications of setting up an LTD or LLP and transferring properties.
• Compare Lenders: Work with a mortgage broker specializing in commercial or BTL mortgages to find the best rates and terms.
• Plan for Costs: Budget for legal fees, valuation costs, SDLT, and potential CGT when transferring properties.
• Understand Risks: Personal guarantees or fluctuating interest rates could impact financial stability.
• Compliance: Ensure the LTD or LLP complies with Companies House and HMRC requirements, such as filing annual accounts and tax returns.

If you have a need for an Buy-To-Let mortgage, please contact us on 0800 061 46 49 or email ask@phillipscapital.info to discuss your options.