Whether you are an investor with a small or a large portfolio, there are many great benefits to buying property through a limited company. This is particularly true if you are a higher or an additional rate taxpayer.
Limited company mortgages are also useful for people wanting to buy property as a group rather than as individuals, they are also useful for people who want to separate themselves from personal liability in the event that something goes wrong.
In this guide, we’ll look at buy-to-let mortgages for limited companies.
Top 10 Buy to Let Mortgages and their interest rates
What is a limited company buy-to-let mortgage?
If you are looking to buy property using a limited company, then you will need a limited company buy-to-let mortgage.
A limited company that wishes to buy property won’t be able to access normal residential mortgages, Instead, you would need to look at a specialist limited company mortgage.
If you are a limited company, the only options available to you will be buy-to-let deals. Roughly 25% of all buy-to-let mortgages are in fact designed to be limited company mortgages that can only be used by a limited company. The other 75% of buy-to-let mortgages can only be used for investing in property as an individual.
Special purpose vehicles and buy-to-let limited companies
Special purpose vehicles are a popular choice because of the fact that they are simple and exist purely for buying, selling, and letting property. In addition to this, mortgage companies generally find special purpose vehicles easy to underwrite. This means that there are more mortgage options available for special purpose vehicles. The interest rates are often better too.
Many lenders will lend to trading limited companies, however they will often only lend to them when they can demonstrate that they have strong financials and have at least two or three years’ accounts to show. In fact, some lenders will only consider a mortgage application from an SPV.
There are restrictions though. Lenders won’t accept SPVs with more than four directors. In addition to this, each director will need to give a personal guarantee that they would repay the loan in the SPV folds.
Can a limited company get a buy-to-let mortgage?
It is indeed possible for a limited company to get a buy-to-let mortgage. You may need to search a little to find a lender that has a suitable mortgage for you. Many of the major high street lenders prefer to focus on straightforward mortgages. With this in mind, you may need to engage the services of a broker who will have an understanding of specialist or niche products.
Can existing limited companies get a Buy to let mortgages?
If a company has a trading history already and has a track record in renting property, then it will be easier for a lender to approve an application. That said, some lenders will still want personal guarantees.
There is then the added consideration that the company owns multiple properties. Some lenders may have a limit on the number of different mortgages any company or borrower may have.
That said, there are lenders that will accommodate those with large property portfolios.
Income requirements for Limited company buy-to-let mortgages
As more investors choose limited company setups to buy their properties, this may prompt questions about how much income their company will need in order to qualify for a mortgage.
New Special Purpose Vehicles (SPVs)
Most special purpose vehicles applying for buy-to-let mortgages are from individuals who have recently set up their limited company. One of the key takeaways about having an SPV is that you can set one up and begin investing straight away. Because there is no income, there will be no income to put onto a buy-to-let mortgage application. This isn’t an issue though as when the application is being underwritten, the lender will look to the SPVs directors.
There may be a minimum threshold of £25,000 in some cases. Many lenders have no minimum income requirements though. All that they require is for you to have an income that balances with your borrowing.
To start investing in your new limited company, you’ll need a business bank account. These can take longer to get set up than the company does.
Established Limited Companies
In the case of a more established company, in addition at looking at the company directors’ finances, the lender may ask for two years worth of accounts so that they can underwrite your mortgage application. The rules on income are the same for an established company as they are for a newly founded SPV.
You may wonder whether you will need an accountant to package up your accounts for your mortgage application. The answer is that you don’t necessarily need this as SPVs don’t trade. Lenders won’t always need formal accounts- they just need accurate ones.
In many cases, the lender will ask that the directors of the SPV provide a personal guarantee that they will cover the costs personally in the event of the SPV folding. Not all lenders require personal guarantees though. Your broker will be able to advise you of lenders that don’t require personal guarantees.
Trading Limited Companies
Applications for buy-to-let mortgages through a trading limited company are complicated and require more underwriting. Most lenders will look for two years worth of profitable accounts with incomes of £25,000 to £80,000+.
If the company hasn’t had such a profitable year, is showing an unexpected loss, or is seeing a decline in annual profits, then you may have difficulties getting a mortgage.
As with any other application, companies need to meet lender stress testing requirements. This will demonstrate that if the property is vacant, then the company has the funds to cover the mortgage payments.
Can an existing SPV limited company purchase a buy to let?
Companies that trade in rental property alone are called special purpose vehicle (SPV) limited companies. They can be classified in several different ways by lenders and according to the Standard Industry Classification code. These codes include:
- 68100: Buying and selling own real estate
- 68201: Renting and operating of Housing Association real estate
- 68209: Other letting and operating of own or leased real estate
- 68320: Management of real estate on a fee or contract basis
For those that are classed as SPVs, accessing a buy-to-let mortgage is easier than for for companies trading under other Standard Industry Classification codes.
How does bad credit affect buy to let for limited companies?
If you have bad credit showing on your file, then this can reduce the amount of options that you have in accessing a limited company buy-to-let mortgage. Some of the issues that may affect you being approved for your mortgage include:
- Low credit score
- Adverse credit overview
- Mortgage arrears
- CCJs, IVAs, and DMPs
Are there dedicated SPV buy to let lenders?
There are many different players in the buy-to-let mortgage industry now, and with high street lenders that used to provide lots of products that suited now only offering financial products to existing customers, you’ll need to head to a specialist broker to find the best deals.
The acceptable loan-to-value ratio can begin at around 85%, however, this may vary in rate. With a range available that includes fixed rates as well as variable rates, and the more competitive discount variables.
Using a broker will help you to find the right lender for your buy-to-let needs.
What are the PROS and CONS of setting up a buy to let limited company?
PRO: Landlords who have set themselves up as a limited company or an SPV limited company will not be affected by the changes to the tax regulations that came into force in 2017. Especially those taxpayers who are on higher or additional rates.
PRO: Limited companies are something which are treated as separate entities legally, this helps you to ring fence your personal liability for financial dealings.
CON: Landlords you set themselves up as a buy-to-let company will need to pay stamp duty on their properties when these are sold or are transferred to the company.
CON: You will need to deal with more complex accounts.
CON: The choice of buy-to Let mortgage products available to you may be more restricted. You may also end up paying higher rates of interest.
CON: You will also need to pay corporation tax on your limited company’s trading profits. This is currently set at 19%.
Will I pay a surcharge with a limited company buy to let Stamp Duty?
If you are unsure about how much stamp duty you will need to pay, get in touch and we will help you to work that out.
Need tax advice for a mortgage for a limited company?
Tax reliefs can be very complicated and getting the right information is essential. If you are looking for tax advice for a mortgage for a limited company, get in touch today. We can help you to arrange a buy-to-let mortgage and the necessary company structure.