Why 80% of New BTL Purchases Go Through Limited Companies — And What HMO Investors Get Wrong

The Section 24 Reckoning: Why ~80% of New BTL Purchases Now Go Through Ltd Companies

Since April 2020, personal-name landlords have been restricted to a 20% tax credit on mortgage interest — not a full deduction. If you're a higher-rate taxpayer, that's the difference between deducting £10,000 of mortgage interest at 40% (saving £4,000) versus getting a flat £2,000 credit. Section 24 didn't just nudge investors toward limited companies. It made personal-name ownership structurally punishing for anyone paying income tax above the basic rate.

According to Quartico's 2026 guide on limited company buy-to-let, roughly 80% of new BTL purchases are now going through limited companies. That's not a niche trend. That's a near-total market shift.

The maths aren't subtle. Corporation tax sits at 19–25% depending on profit levels. Personal income tax for landlords with decent portfolios hits 40–45%. And inside a limited company, mortgage interest remains fully deductible against rental income — the way it always should have been. So the structural case for Ltd company ownership is solid. I'm not going to argue against it.

What I am going to argue is that too many investors treat the Ltd company incorporation as the finish line. They set up the SPV, they buy the HMO, and then they make a mortgage decision that quietly undermines the entire tax efficiency they just worked to create.

The Specific Mistake: Choosing a 2-Year Fix Without Stress-Testing the Refinance

Here's what happens in practice. An investor sets up a limited company SPV, finds an HMO — let's say a 6-bed in a regional city — and gets a mortgage offer. The broker presents a 2-year fixed rate. It looks cheaper on paper. The investor takes it, relieved to have secured the deal.

Two years later, rates have moved, the property needs to be refinanced, and the stress test at that point determines how much can be borrowed. This is where the problem bites.

Lenders stress-test HMO mortgages at a coverage ratio — typically requiring rental income to cover 125–145% of the mortgage payment at a notional rate (often 5.5% or higher, depending on the lender and the product). On a 2-year fix, lenders apply a higher stress rate because of the refinancing risk they're absorbing. On a 5-year fix, many lenders use a lower stress rate — because the rate is locked for longer, the risk profile is different.

AgentHMO has noted this distinction directly: 2-year fixes suit BRRR investors who need to refinance quickly to recycle capital, but 5-year fixes offer lower stress test rates that enable higher borrowing at the point of application. That's not a marginal difference. On a £400,000 HMO mortgage, the gap in maximum borrowing between the two products can run to tens of thousands of pounds.

The HMO Mortgage Broker has reported 5-year fixed rates from approximately 4.8% at 75% LTV for Ltd company structures (as of early 2026). That's the benchmark worth knowing. Whether rates have moved by the time you read this, the principle holds: the 5-year fix isn't just about payment certainty — it's about borrowing capacity at the stress test stage.

So if you're building a portfolio and your goal is to maximise the equity you can pull out at refinance — whether for a next acquisition or to free up cash — the 2-year fix is often the wrong tool. You're optimising for the short-term rate while ignoring the medium-term constraint it creates.

When the 2-Year Fix Is Actually Right (And When It Isn't)

I want to be fair here. The 2-year fix isn't always wrong. There's a specific investor profile for whom it makes sense: the BRRR investor who buys a distressed HMO, refurbishes it, and needs to refinance at an uplifted valuation within 24 months to pull out capital for the next deal. In that scenario, locking into a 5-year fix creates an early repayment charge problem — ERCs on 5-year products typically run at 3–5% of the outstanding balance in the early years. On a £400,000 mortgage, that's £12,000–£20,000 walking out the door if you exit early.

So the trade-off is real. If you're running an active BRRR strategy, the 2-year fix preserves your exit flexibility. If you're building a hold-and-compound portfolio — which is the strategy most HMO investors in a Ltd company SPV are actually running — then the 5-year fix is almost always the better structural choice.

The mistake isn't choosing the wrong product in isolation. The mistake is choosing without modelling the refinance scenario first. Most investors I've spoken to couldn't tell me what stress rate their lender would apply at refinance, or what that meant for their maximum LTV. That's the knowledge gap that costs money.

One more thing worth flagging: Ltd company HMO mortgages carry higher arrangement fees than personal-name products — sometimes 2–3% of the loan. On a 2-year fix, you're paying that fee every two years. On a 5-year fix, you're amortising it over five. That's another quiet cost that the rate headline doesn't show you.

Freeing Equity From an Existing Portfolio: The Problem Nobody Talks About

Even investors who got the initial mortgage structure right often hit a wall when they try to free up equity from an existing HMO portfolio. This is, frankly, one of the most underserved problems in property finance.

A typical scenario: an investor has three or four HMOs held in a Ltd company, each with decent rental yields, but the mortgage products are legacy deals — possibly on standard variable rates, possibly with lenders who've since tightened their HMO criteria. The investor wants to pull equity out to fund a fifth acquisition. They call their bank. The bank says no, or offers terms that make the deal unworkable.

This happens because HMO remortgaging is genuinely more complex than standard BTL. Lenders assess room counts, licensing status, Article 4 compliance, and rental income per room rather than per property. Many high-street lenders either don't offer HMO products at all or cap at four-bed properties. The specialist lender market is where this gets resolved — but navigating it without a broker who knows the space is slow and often expensive.

Freeing equity from a mixed portfolio — some standard BTL, some HMOs, some in personal name, some in Ltd company — is harder still. The cross-collateralisation issues alone can trip up an inexperienced adviser.

This is exactly the kind of problem that ZARSK's regulated mortgage partners specialise in. They work specifically with HMO investors and Ltd company structures, and they've been doing it for over a decade. If you're sitting on equity you can't access, or you're trying to refinance an HMO portfolio and getting doors closed on you, that's the team worth speaking to. You can book a free call at [zarsk.co.uk/finance-property](https://www.zarsk.co.uk/finance-property).

What to Actually Do Before Your Next HMO Mortgage Decision

Before you commit to any mortgage product on an HMO inside a Ltd company, run through this sequence:

First, model the stress test at refinance — not just the monthly payment today. Ask your broker what ICR (interest coverage ratio) the lender applies, at what notional rate, and what that means for your maximum borrowing in two years versus five.

Second, be honest about your strategy. Are you BRRR-ing this property, or are you holding it? If holding, the 2-year fix is almost certainly the wrong product. If BRRR-ing, factor the ERC into your deal appraisal from day one — not as an afterthought.

Third, if you're remortgaging an existing portfolio, don't start with your current lender. Start with a broker who has whole-of-market access to specialist HMO lenders. The difference in available products between a high-street bank and a specialist lender can be the difference between a deal that works and one that doesn't.

Fourth — and this is underappreciated — get your SIC code right when you set up the SPV. Using SIC code 68100 (buying and selling of own real estate) versus 68209 (other letting and operating of own or leased real estate) can affect how some lenders assess the company. It's a small detail. It matters.

The Ltd company structure is the right call for most HMO investors right now. But it's a vehicle, not a strategy. The strategy is in the mortgage structure, the refinance modelling, and the equity management. Get those wrong inside a perfectly set-up SPV and you've built a tax-efficient box that's still leaking money.

The 80% statistic is going to keep climbing. Section 24 isn't being reversed. Corporation tax, even at 25%, is still materially better than 45% income tax for a portfolio landlord. The structural argument for Ltd company ownership is settled.

What isn't settled is whether the mortgage market has caught up with the volume of investors now using these structures — and whether those investors are making decisions that actually match their portfolio goals. Most aren't. They're copying what worked for the investor they follow on YouTube, without modelling whether it fits their own refinance timeline, their own LTV position, or their own equity extraction needs.

The next decade of HMO investing will be won or lost on capital efficiency. Not yield. Not deal sourcing. Capital efficiency — how well you recycle equity, how intelligently you structure debt, how much borrowing capacity you preserve at each refinance. The investors who understand that are already pulling away from the ones who don't.