A host of Government and regulatory changes have made life for landlords rather tougher.
Opting to invest in property by setting yourself up as a limited company, rather than as an individual, can have some tax benefits.
However, there are additional costs to consider, such as the tax you will have to pay when essentially selling the property to yourself when transferring the ownership.
Another important financial consideration is your mortgage – most landlords rely at least in part on mortgage finance when adding to their portfolios, particularly in this low rate environment.
But a limited company mortgage is not exactly the same as a traditional buy-to-let mortgage.
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Finding a limited company buy-to-let mortgage
Lenders have taken little time cottoning on to the fact that landlords are increasingly likely to go down the limited company route, which has led to a pretty dramatic increase in the number of deals on offer.
Charlotte Nelson, spokesperson at finance data site Moneyfacts, said: “With the extra pressure in the buy-to-let market and the added interest in limited companies, it is no surprise that lenders have leapt into action and started offering more deals to limited companies.”
Even though the market is growing, it bears repeating that limited company loans still represent a relatively small percentage of the buy-to-let sector as a whole.
Many lenders are not active in this market at all, and of those that are, the criteria can vary significantly.
As a result, it's worth considering using a mortgage broker. Yes, you'll have to pay for their advice, but their expertise in identifying exactly which lenders are most likely to want to lend to you will likely be worth that added expense
Search for a buy-to-let mortgage deal today
Limited company vs individual buy-to-let mortgages
In terms of the basic structure of the mortgage, there is no difference – a two-year fixed rate is a two-year fixed rate, whether you are borrowing as an individual or as a business.
There are other differences to be aware of though.
The most obvious one is the rate of interest you pay, as these are generally significantly higher on a limited company loan. And of course, the recent Base Rate hike is unlikely to help.
However, that doesn't mean there aren't any competitive deals out there.
David Hollingworth, associate director of mortgage broker L&C, suggests that, as the size of the limited company buy-to-let market increases, the rates on offer are likely to become more competitive.
He said: “If more lenders enter this side of the market the range of rates on offer should start to sharpen up as competition increases.”
You may be able to access larger loans when going down the limited company route too.
Affordability differences
Then there are the affordability tests. When a lender offers a buy-to-let loan, one thing they will look at it is the ‘interest cover ratio’ – basically the difference between the rent coming in and the mortgage repayment.
It is increasingly common for lenders to look for a ratio of 145%. In other words, the rent needs to be the equivalent of 145% of the monthly mortgage repayment.
However, some lenders will look for a lower interest cover ratio when lending to limited company landlords.
Hollingworth explained: “Rental coverage requirements can be lower than for standard deals, as lenders are factoring in that limited company landlords will not be hit by the reduction in mortgage interest relief that others are now facing.
"As a result, you are more likely to see 125% coverage rather than the typical 145% coverage on standard rates.”
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An army of helpers
Limited company buy-to-let unquestionably offers potential savings for some landlords, particularly those with large portfolios who have essentially built a business out of their investments.
But going down this route will require quality assistance in the form of a good accountant and a knowledgeable mortgage broker.
It’s up to you whether that seems like more trouble than it’s worth.
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