Mortgages When Incorporating a Buy-to-Let Portfolio: Novation, Refinancing and Section 162

Mortgages are the operational pinch point of most landlord incorporations. The CGT and SDLT analysis can both look favourable on paper and then the deal stalls because the existing personal buy-to-let lenders will not consent to the transfer, the commercial buy-to-let lenders quoting on the new structure want a larger deposit than the equity in the property supports, or the redemption penalties on the personal loans wipe out the first few years of corporation tax saving. This piece sits under the pillar guide on the new 2026 Section 162 claims process, and pairs with the companion pieces on SDLT traps when transferring property to an SPV and portfolio valuation and HMRC dispute risk.

The piece walks through why personal mortgages do not transfer, the refinancing mechanics, the cost stack, the loan-to-value reality on a commercial product, and the sequencing problem of moving SDLT, CGT, and refinance through completion together. The conclusion is that the mortgage analysis is often the decisive cost in the incorporation case, not the headline CGT saving.

Why personal mortgages do not move with the property

A personal buy-to-let mortgage is granted to the individual landlord on personal underwriting: income, age, credit, residential status. The lender has no obligation to consent to the property being transferred into a separate legal person, and almost all standard buy-to-let mortgage terms either prohibit it or treat it as a redemption event. The practical reality is that the personal loan must be repaid in full at the point the property leaves the landlord's personal ownership, and the company must arrange its own facility to fund the acquisition.

A small number of lenders do offer "porting" or consent arrangements for restructures, but these are exceptions and rarely available on the standard residential buy-to-let products that most Harrow landlords use. The default assumption when modelling an incorporation should be that every personal loan will be redeemed and a new commercial loan will be drawn down by the SPV against the same property.

Redemption penalties and exit fees

Most fixed-rate and discounted buy-to-let products carry early repayment charges within the fixed or incentive period. The charge is typically a percentage of the loan balance, scaling down over the life of the deal. A two-year fixed-rate loan redeemed in year one tends to carry a higher percentage charge than the same loan redeemed in year two. Where a portfolio sits across several lenders and product start dates, some properties may be in a penalty window while others are out of it, and the timing of the incorporation can be reshaped to minimise the total redemption cost.

Exit fees and discharge fees apply in addition to any redemption penalty and are charged by the lender for closing the account and releasing the security. These are usually modest individually but add up across a multi-property portfolio. The portfolio incorporation business case should include a line for total redemption and exit fees rather than ignoring them as small items.

The commercial buy-to-let market for SPVs

Lenders willing to lend to limited-company landlords form a smaller market than the personal buy-to-let space. Pricing tends to run higher than the equivalent personal product, both in headline rate and in arrangement fee. Stress tests are more conservative: rental income must usually cover a higher multiple of the interest payment, and the implied interest rate used for the stress test is higher than the actual rate. The net effect is that an SPV can typically borrow less against the same property than a personal landlord could.

Stress-test mechanics in plain terms

A lender stress-testing a commercial buy-to-let calculates the rent the property needs to cover the loan at an assumed higher interest rate, with a multiplier applied for cushion. If the actual rent is below the stress-test figure, the loan is sized down until it fits, regardless of what the landlord wants to borrow. On a property that supported a 75 percent loan-to-value personal mortgage, the same property might support only 65 to 70 percent on a commercial SPV product. That gap has to be funded with cash deposit at the point of the refinance.

The deposit gap and where the cash comes from

Where the commercial loan is smaller than the existing personal loan, the difference has to come from somewhere. The landlord typically pays the gap as a deposit into the SPV, either as additional share capital or as a director's loan that sits as an opening balance on the company's books. The deposit funds the difference between the commercial loan and the value the company is acquiring the property for. Across a multi-property portfolio the cumulative deposit gap can run to tens or low hundreds of thousands of pounds, and the source of that cash is often the most under-modelled part of an incorporation plan.

Some landlords assume that equity already sitting in the properties can simply roll into the SPV. It cannot, because the personal mortgages are being redeemed in cash at completion and the SPV is acquiring the properties for fresh consideration funded by its own borrowing. The equity is realised on redemption and then needs to be reinjected into the SPV as deposit. The mechanics are pure cash flow, not accounting equity.

The full mortgage cost stack on incorporation

Modelled cleanly, the cost stack of refinancing a portfolio onto SPV products often equals or exceeds the SDLT bill on the same transfer. For an honest incorporation case the two have to be added together and weighed against the recurring tax saving from running through a company. Where the combined upfront cost is large relative to the annual saving, the payback period stretches beyond the planning horizon of many landlords.

The sequencing problem at completion

At completion three things have to happen on the same day for the same property: the SPV draws down the new commercial loan, the funds redeem the personal mortgage, and the property is transferred from the individual to the SPV. The SDLT return is then filed and paid within 14 days, and the CGT property-disposal return is filed and paid within 60 days. The conveyancer running the property transfer, the broker arranging the SPV facility, and the accountant handling the tax returns all need to be sequenced together, with funds and signatures moving in a single coordinated flow.

Where the portfolio is several properties, completing all of them on a single day is usually impractical, so the transfers are staged. Staging introduces its own complication: each individual transfer is its own SDLT event, but linked transactions rules may aggregate them, and the partnership-relief calculation under Schedule 15 (where used) treats the portfolio as a whole. The accountant has to plan the SDLT and partnership analysis across the whole sequence before any single property moves.

Ongoing interest costs on the commercial product

Commercial buy-to-let rates run higher than personal buy-to-let rates for the same property and the same loan-to-value, often by a meaningful margin once arrangement fees are amortised in. Over a five-year hold, the extra interest cost can run into tens of thousands of pounds on a single Harrow property, and the landlord needs to weigh that recurring cost against the corporation tax and Section 24 savings the company structure delivers. The headline saving on dividend extraction versus higher-rate income tax is real, but the higher mortgage cost partly absorbs it.

When the mortgage analysis kills the deal

A landlord with portfolios bought when personal buy-to-let rates were materially cheaper, currently mid-way through fixed periods, sitting on personal products that would carry meaningful redemption penalties on early exit, can find that the up-front cost of refinancing the entire portfolio runs to a large fraction of the lifetime tax saving. In that situation the rational call is often to defer incorporation until the personal products expire naturally, then refinance into the SPV as each loan rolls. The CGT clock and the Section 24 exposure still run in the meantime, so this is a trade-off not a costless wait, but it can be the cleaner option.

The role of the broker

A specialist commercial buy-to-let broker is essential to the analysis. The SPV mortgage market is narrower than the personal market, lender appetite shifts quickly, and the difference between two products on the same property can swing the deposit gap by tens of thousands of pounds. The broker should work alongside the accountant from the modelling stage onward, not be brought in after the structural decisions are made. A broker who only sees the deal at completion has no opportunity to reshape the structure to fit a better lender.

Where this leaves the incorporation case

Once the SDLT bill, the redemption and refinance cost, and the deposit gap are all priced honestly, the incorporation decision becomes a clean calculation. The CGT deferral remains the long-term benefit, but the up-front cash needed is much larger than headline figures usually suggest. The companion piece on SDLT traps when transferring property to an SPV covers the tax side of the same transfer, and the piece on portfolio valuation and HMRC dispute risk sets out the valuation work that anchors the SDLT, the CGT, and the new lender's LTV calculation at once. The pillar guide on the 2026 Section 162 claims process ties the picture together.