HMO Mortgage For LTD Company

A limited company HMO mortgage finances a House in Multiple Occupation (HMO) held inside a corporate structure rather than in personal names. Landlords use this route mainly for the tax treatment, because limited companies are not subject to the Section 24 restriction on mortgage interest relief that applies to individual landlords.

Lenders assess a limited company HMO case on rental coverage, valuation method, licensing status, company structure, and director experience. The Loan to Value available is broadly the same as for an individual borrower, but the pricing, the underwriting, and the tax position are not.

Mortgage Lane arranges HMO mortgages through limited companies for new and experienced investors, covering standard HMOs and larger multi-tenant properties.

Limited company HMO mortgage versus personal name

Loan to Value is not the difference between holding an HMO personally and holding it in a limited company. Tax treatment and interest rate are.

Loan to Value

Loan to Value on an HMO mortgage is generally capped at around 75% to 85% for both individual and limited company borrowers, requiring a deposit of 15% to 25%.

Contrary to a common misconception, Loan to Value on an HMO mortgage is not lower for limited companies than for individuals. Both borrower types access similar Loan to Value levels.

Interest rates

Interest rates on limited company HMO mortgages tend to be slightly higher than on the equivalent personal mortgage. Lenders price for the additional complexity of company structures and the possibility of the company being wound up.

The higher rate is often outweighed by the tax position and by access to a broader range of products designed specifically for corporate borrowers, which can offer more flexibility and longer-term planning options.

Tax: the impact of Section 24

Section 24 of the Finance (No. 2) Act 2015 restricts the mortgage interest relief individual landlords can claim on buy-to-let residential property, and does not apply to limited companies. Section 24 was phased in from April 2017 to April 2020.

Before Section 24, landlords could deduct mortgage interest and other finance costs from rental income before calculating their tax liability. That was a significant advantage for highly leveraged landlords.

Under Section 24, individual landlords can no longer deduct all their finance costs from rental income. Instead they receive a basic rate tax reduction, which can substantially increase taxable income for higher and additional rate taxpayers.

Limited companies are not subject to Section 24. A limited company can continue to deduct mortgage interest and other finance costs as business expenses, which is why holding property in a corporate structure is more tax-efficient for many higher-rate taxpayers, particularly those with large mortgage debts.

This is information only. Always take advice from a qualified tax and legal professional before deciding how to hold a property.

Product transfers on a limited company HMO mortgage

A product transfer switches from one mortgage product to another with the same lender, without the cost and administration of a full remortgage. Product transfers are particularly useful for landlords managing HMO mortgages inside a limited company, where remortgaging costs are higher than on a standard buy-to-let.

Four costs are typically reduced or removed:

• Valuation fees. Because the transfer stays within the same lender, a new property valuation is often not required, which can save hundreds of pounds.
• Legal fees. Product transfers generally do not require new legal documentation or a solicitor. The lender handles the process internally.
• Arrangement fees. Many lenders charge lower arrangement fees on product transfers than on new products, and some waive them entirely as a retention incentive.
• Broker fees. A landlord going directly to their existing lender for a product transfer usually does not need a broker.

The trade-off is that a product transfer only offers that lender's own products. Whether the retained deal beats the open market is worth checking before accepting it.

Article 4 areas and limited company HMO mortgages

An Article 4 direction removes permitted development rights, meaning planning permission is required to change a property's use to an HMO in that area. Article 4 affects both purchases and remortgages, in different ways.

Buying an HMO in an Article 4 area

• Research the local position first. Article 4 requirements are set locally. Local planning authority websites publish existing and proposed Article 4 directions for their area.
• Obtain a Certificate of Lawful Use. For an existing HMO, a Certificate of Lawful Use evidences the property's established HMO status. It simplifies the mortgage process and gives the lender assurance on compliance.

Remortgaging an HMO in an Article 4 area

• Evidence existing use compliance. For a property already operating as an HMO, lenders will want to confirm the necessary planning permission or a Certificate of Lawful Use is in place.
• Expect additional underwriting. Article 4 directions can influence the valuation and may increase the investment weighting applied to an HMO valuation. Lenders may apply extra underwriting on Article 4 HMOs to confirm continued compliance, which can affect the terms and rate offered.

HMO Mortgage For LTD Company: frequently asked questions