Landlords who buy their properties through a limited company could be £1,000 a year worse off due to higher mortgage rates, warns an independent mortgage broker.

A borrower with a limited company could expect to pay 3.41 per cent for a two-year fixed 75 per cent loan-to-value mortgage deal, compared to 1.92 per cent for personal borrowers, according to analysis by Private Finance.

Incorporation has recently been suggested as a means of sidestepping new buy-to-let tax changes, which will see the tax relief that residential landlords get for finance costs being phased out to the basic rate of tax, by 2021.

But the high cost of mortgage borrowing for a limited company will outweigh any tax advantages for landlords who own fewer than four properties.

Shaun Church, director of Private Finance, says: “The option to invest through a limited company has come under the spotlight recently as landlords look for ways to offset recent tax changes. But landlords shouldn’t rush into this assuming it’s a safe bet for saving money.

“Limited company mortgage products are available through a handful of smaller lenders, resulting in higher rates compared to personal borrowing. Investors need to drive down mortgage costs as much as possible to prevent this from eating into their profits.

“Larger landlords might find the tax benefits associated with limited company ownership outweigh the higher cost of mortgage borrowing. Each investor is different and there’s no one-size-fits-all solution."

A landlord with one property who earns £46,010 annually (£35,000 base salary plus £11,010 in rental income – the average for a two-bedroom house in the UK) will have £36,194 in take-home income after tax and mortgage costs have been deducted.

However, due to the higher cost of mortgage borrowing, if the same landlord bought through a limited company, Private Finance calculates that they would earn £34,825 in take-home income – that’s £1,369 or 4 per cent less.

Landlords with properties in limited companies will have a significantly reduced tax bill after subtracting mortgage interest costs from their rental income before calculating their corporation tax.

This is even when they pay income tax on a salary as well as corporation tax.

But Private Finance calculates that this saving can only be achieved if a landlord has four or more properties.