When considering a Multiple Occupancy mortgage, landlords can choose to take the mortgage in their personal name or through a limited company. Each option has its own set of advantages and disadvantages.

Loan-to-Value (LTV) Ratios

One of the critical factors in any mortgage decision is the Loan-to-Value (LTV) ratio, which represents the loan amount as a percentage of the property’s value. For HMO mortgages, LTV ratios are generally capped at around 75%-85% for both individual and company borrowers. This means that landlords typically need to provide a 25%-15% deposit.

Contrary to some misconceptions, LTV ratios for HMO mortgages are not higher for ltd companies compared to individual borrowers. Both types of borrowers can access similar LTV levels, but the overall borrowing experience and associated benefits differ significantly.

Interest Rates

Interest rates for HMO mortgages taken out by limited companies tend to be slightly higher than those for individual borrowers. Lenders perceive lending to a company as riskier due to factors such as the complexity of company structures and the potential for the company to be wound up.

Despite the higher rates, the benefits of using a limited company often outweigh this additional cost. Limited companies can access a broader range of financial products tailored specifically for corporate borrowers, potentially offering more flexibility and longer-term financial planning options.

One of the most compelling reasons landlords are turning to HMO mortgages for ltd companies is the impact of Section 24 of the Finance (No. 2) Act 2015. This legislation, which phased in from April 2017 to April 2020, restricts the amount of mortgage interest relief individual landlords can claim on buy to let residential properties.

Section 24 Explained

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

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

Benefits for Ltd Companies

Limited companies are not subject to Section 24 restrictions. They can continue to deduct mortgage interest and other finance costs as business expenses, which can be particularly advantageous for higher-rate taxpayers. This makes holding properties in a limited company structure more tax-efficient, especially for those with large mortgage debts.

This is for information only, we do advise that you always speak to a tax and legal professional.

Product transfers refer to the process of switching from one mortgage product to another with the same lender. This option is particularly useful for landlords managing HMO mortgages for ltd companies as it offers a seamless way to adjust their mortgage terms without the extensive costs and administrative burdens associated with full re-mortgaging.

Benefits of Product Transfers

Product transfers can significantly reduce or even eliminate many of these upfront costs, providing a more cost-effective way to manage an HMO mortgage for ltd company.

1. No Valuation Fees: Since product transfers occur within the same lending institution, the lender often does not require a new property valuation. This can save landlords hundreds of pounds.

2. No Legal Fees: Product transfers typically do not necessitate new legal documentation or the involvement of solicitors, thereby eliminating legal fees. The process is handled internally by the lender, simplifying the transition.

3. Lower or No Arrangement Fees: Many lenders offer product transfers with lower arrangement fees compared to those charged for new mortgage products. Some lenders may even waive these fees entirely as an incentive for borrowers to stay with them.

4. No Broker Fees: If a landlord opts for a product transfer directly through their current lender, there is usually no need to involve a broker, thus saving on broker fees.

To successfully purchase an HMO with an HMO mortgage for ltd company in an Article 4 area, landlords should:

1. Conduct Thorough Local Research: Investigate the specific Article 4 requirements in the target area. Local planning authority websites provide essential information on existing and proposed Article 4 directions.
2. Obtain a Certificate of Lawful Use: For existing HMOs, secure a Certificate of Lawful Use to prove the property’s established HMO status. This can simplify the mortgage process and assure lenders of the property’s compliance.

Article 4 directions also impact the process of remortgaging an HMO with an HMO mortgage for ltd company, albeit differently than purchasing:

1. Existing Use Compliance: For properties already operating as HMOs, ensuring compliance with Article 4 can be crucial during the remortgaging process. Lenders will want to confirm that the property has the necessary planning permissions or Certificates of Lawful Use.
2. Property Valuation and Lender Perception: Article 4 directions can influence property valuation and may increase the investment bearing to the valuation for a HMO. Lenders may require additional underwriting on Article 4 HMOs to ensure continued compliance with local regulations, potentially affecting loan terms and interest rates.