What are limited company mortgages?

9 Feb 2022

Limited company mortgages are a popular method for companies to raise capital from the assets that belong to the limited company. If your company has commercial or residential property in its portfolio and equity available to use as collateral, raising money can be a relatively straightforward matter. Similarly, if you’re looking to buy a new property for the company, a limited company mortgage might be the perfect solution.

Mortgage broker at his desk

The basics of a limited company mortgage

Many of us are familiar with residential mortgages. In some ways, limited company commercial mortgages are similar. The length of terms can be shorter or longer, and the interest rates can often be higher compared to residential arrangements. Such mortgages are also popular amongst buy to let investors, a subject covered later in this blog post.

Can Limited companies get mortgages?

Lenders will generally look for a track record before agreeing to standard business loans and an active trading limited company will undergo similar scrutiny when applying for a mortgage. However, it’s not unusual for new limited companies or start-ups to receive commercial funding through limited company mortgages.

Many new companies get set up for this specific purpose, and they might be property investment firms exclusively called SPVs (special purpose vehicles). In such cases, the credibility of the directors is crucial to any lender’s decision making, and personal guarantees are often needed.

Trading companies and SPVs explained

A trading company has a primary trading function rather than existing to acquire, manage and own property. For instance, a manufacturer might own the building it operates from, or a contractor business (run as a limited company) might look to buy premises out of the cash profits built up from its business activities.

In comparison, the SPV (as a limited company) gets set up to buy and manage property exclusively.

As an example, you might set up XYZ ltd, which buys a property for your company to run its business. The SPV company doesn’t actively trade other than to hold the asset and perhaps charge rent to your company, and the SPV could buy more property.

Lenders will evaluate SPVs and trading companies differently

If a trading company wants a mortgage to buy a property, the lender will examine the company’s performance.

The lender examines the latest accounting information, including accounts filed at Companies House (if the firm is a limited company).

The potential lender will scrutinise the balance sheet, the profit and loss statement, and cash flow forecasts. Lenders undertake such analysis because the mortgage payment could be at risk if the company’s performance deteriorates.

But for an SPV, past performance is irrelevant. The SPV only holds the property, so there’s no risk associated with the company’s primary activity.

Limited company mortgage criteria

Lenders will attach specific criteria for their limited company mortgages, and we’ll cover some here. Each lender is different, and your application is unique, so talking to a business finance specialist can help narrow down the qualifying criteria.

·  Many lenders will look for minimum deposits of 20%, and the rent achievable might have to exceed the mortgage payment significantly.

·  The company might need to get expressly incorporated to buy, let, and sell any property if it’s an SPV.

·  The company typically must be registered in England, Wales, or Scotland and match the records held at Companies House.

·  The lender might limit the number of directors or shareholders it can consider, and they might need to own 100% of the company shares between them.

·  The terms can be between five and thirty years. The lender might insist on a minimum unexpired term for a leasehold property.

·  Age restrictions might exist, you might have to be over 21 to get a limited company mortgage.

·  Credit history can play a part, the lender might refuse recent bankrupts and those who’ve experienced a property repossession.

Is it easier to get a commercial mortgage as a limited company?

Some lenders specialise in limited company mortgages specifically. Consequently, they’ve made the application and approval streamlined.

At Funding Options, we’ve set up relationships with specialist lenders in many sectors to help target lenders most likely to deliver quick decisions.

Limited companies can be a straightforward underwriting decision for lenders. If the company was incorporated a year or two earlier, much of the information is already available at Companies House.

Similarly, if the recently created company’s sole purpose is to buy or invest in property, the lender is familiar with such uncomplicated arrangements.

Find funding

Limited company mortgage broker

At Funding Options, we’ve set up relationships with many lenders who cater to clients who need limited company mortgages. In some ways, we act as a limited company mortgage broker when we automatically assess your application in our Lending Cloud, it’s like how a residential mortgage broker might help you get a mortgage to buy a flat or house.

Often your first port of call for a company mortgage might be your business bank. But they can often have rigid criteria, and they don’t typically look for a whole market solution. If your current bank can offer you a limited company mortgage, it mightn’t be available at the most competitive interest rate. So, it can pay to use our team of experts to find the best solutions.

Limited company mortgages tax advantages

Limited companies pay corporation tax, not income tax, and the primary corporate rate in the U.K. is 19% compared to the highest rate of 45% for income tax. Therefore, tax allowances and reductions might be available depending on how you structure your business affairs.

So, setting up a limited company makes sense if you are a higher rate taxpayer. Instead of paying up to 45% income tax on your profits, property owners owning rental property through limited companies pay corporation tax on profits at the lower rate of 19%.

In the past, the income tax you paid could get offset by generous mortgage tax relief. Private landlords could claim tax relief on their mortgage interest at the rate they paid income tax, at as much as 45% for those paying the highest tax rate.

Since 2017 this relief has been gradually reduced, meaning that this fiscal year landlords will only be able to claim relief at the introductory tax rate of 20%.

How to apply for a limited company mortgage

Here at Funding Options, we have a dedicated team of business finance specialists who’ll handle your enquiry and application from start to finish.

We’ve established relationships with many lenders in the niche limited company mortgage space. To begin the process, please click here to provide us with basic details, and we’ll take it from there.

Apply for funding


Funding Options
Funding Options

Editorial team

Subscribe to our newsletter today

Sign up for the best of Funding Options sent straight to your inbox.