Limited Company Buy to Let Mortgages
A limited company mortgage is a special type of product that is taken out through your limited company rather than in your own name. There are some tax advantages but also some considerations for this sort of mortgage.
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Limited company mortgages can be more difficult to obtain as there are fewer high street lenders that offer these products and mortgage rates can be higher. Shopping around for the best deal is a good idea. Get expert advice from a mortgage broker who understands the rental property market and can find the right specialist lenders to suit your circumstances.
Can you take out a mortgage through a limited company?
Due to changes in the taxation of buy-to-let properties, many portfolio landlords are now taking out buy to let mortgages through a Ltd company as they look to increase their rental profits.
Limited company mortgages are usually taken out by landlords using a Special Purpose Vehicle (SPV) which is a company set up with the sole purpose of buying, selling and holding properties. Some lenders do also lend to trading companies as well as partnerships.
Why operate buy to let through a limited company?
If you are a portfolio landlord (which means you have four or more properties) you can ensure your property rental business is more tax-efficient by using a limited company to hold your properties. However, even private landlords are becoming more aware of the option to register their rental properties owned through a limited company.
The biggest benefit of using limited companies is the tax relief as the mortgage interest can be deducted, along with arrangement fees, before you pay Corporation Tax whereas individual landlords paying personal income tax cannot deduct mortgage interest and arrangement fees from rental income when paying income tax.
We must stress though that this is for information only and you must always seeks the relevant tax advice.
How to apply for a limited company mortgage
Arranging a mortgage through a limited company requires a few steps:
- Set up an SPV. You can register your limited company as an SPV at Companies House for a small admin fee or if you prefer you can use the services of a lawyer or accountant to do it for you.
- When you register your SPV, you will need to choose one of the Standard Industrial Classification codes (SIC codes) that best represents your limited company’s activities. There are 4 SIC codes related to property for SPVs:
- 68100 If you buy, renovate, and then sell the property (also known as ‘flipping property).
- 68209 If you have buy-to-let properties that you hold and rent out.
- 68320 Managing your or others’ real estate for a fee.
- 68310 Used by real estate agencies.
- Complete the mortgage application paperwork. If you require help with this, use a specialist mortgage broker who is used to dealing with limited company mortgages.
- Open a business bank account for the limited company.
- Register for Corporation Tac within 90 days.
When applying for a limited company mortgage, you will need to have certain information for the lender to assess your finances and make you a mortgage offer. As a limited company mortgage is a commercial mortgage, you may need to provide your company accounts for the lender to check that you have sufficient income to make monthly mortgage repayments. If you have only just set up your SPV, you will not have company accounts so company directors will usually need to have a minimum income of £25,000 to be eligible. However some lenders have no minimum income requirements.
Other common eligibility criteria include, but are not limited to:
- At least two directors and they should also be shareholders
- Directors must usually provide personal guarantees in the event of repossession
- Other loans are usually not accepted as the deposit for ltd company mortgages
- Loan To Value (LTV) is often capped at 75% which means you may need a higher deposit than for a traditional buy to let product.
BTL interest rates
Many lenders charge a higher interest rate for limited company mortgages than for a standard BTL mortgage. Monthly repayments would tend to be higher for these types of mortgages.
Mortgage rates for limited companies are more expensive because these mortgages are more complex than traditional buy-to-lets and therefore attract higher fees. In addition, there may be additional legal costs and other fees for the borrower.
Get in touch with Simmonds Mortgage Services today
Purchasing a property through a limited company as a buy to let mortgage could be an excellent way to maximise your profits and avoid excess income and Capital Gains Tax but it’s important to take professional financial advice before making any decisions.
What is the difference between a limited company mortgage and a general buy to let mortgage?
A general buy to let mortgage product is taken out by an individual whereas a limited company buy to let is in the company name.
Are all limited company buy to let mortgages under SPV?
Most limited companies that own properties will be under SPV however other sets ups are often acceptable.
Is it harder for limited companies to get a buy to let mortgage?
Fewer lenders offer limited company mortgages if SPV is not in place but it is possible to find lenders who will allow standard limited companies to take out a btl mortgage.
Can I live in my limited buy to let property?
You are usually not allowed to live in a buy to let property, it should be let out.
Can you get interest only deals for buy to let mortgages for limited companies?
Yes, you can usually choose interest only or repayment products.
Can you get fixed rate mortgages for limited company BTL products?
Yes, there are fixed rate and variable rate products available.
Is there an early repayment charge?
There are lenders who offer no early repayment charges to make it easier to buy and sell properties on limited company buy to let products.
Is there a maximum number of limited company mortgages I can take out?
Many specialist lenders have no cap on the amount of properties you own, each case is assessed individually.
What level of Stamp Duty Land Tax is payable for Ltd company mortgages?
A property purchased through a company to let out would usually incur the higher 3% surcharge for stamp duty, however you must always seek tax advice as we are not able to offer this.
Where can I find mortgage rates for a Ltd company BTL?
As a whole of market broker we will asses the market and offer the most suitable product for your purchase or remortgage. Contact us on 0118 469 3037 for a no-obligation chat about your circumstances.