If you plan to purchase a property through your limited (Ltd) company, you will want to try and secure the best possible buy-to-let mortgage available. It’s not uncommon to see companies get declined for these mortgages simply because they received bad advice or failed to seek any advice at all. It is certainly possible to obtain a buy-to-let mortgage through a limited company but you will need quality, accurate advice tailored to your specific business. The experts at Think Plutus are highly experienced in this type of situation, so we can help you get the mortgage you need to move forward.
To get started, Contact Think Plutus today, or read on to learn more about buy-to-let mortgages for limited companies.
There are many inexperienced brokers who will refuse to take on a borrower aiming to ring-fence their investment properties in limited companies. This is because lenders that accommodate this type of arrangement can be hard to find. What’s more, the process of arranging an application can be complex and time-consuming if the broker has little experience of this specialist field.
The reality is that most high street lenders will not offer this type of mortgage, choosing instead to compete in the less complex area of mainstream mortgage products. Consequently, borrowers who want to take out a buy-to-let mortgage through their limited company often end up taking out personal loans and miss out on the advantages of getting this type of mortgage.
Any investor with a portfolio of properties, whether large or small, can enjoy significant tax benefits by owning those properties via a limited company. This is particularly helpful for higher/additional rate taxpayers, as corporation tax is lower than their income tax rate, if they leave the profit in the company. Limited company mortgages are also a good option for people buying property as a collective rather than a pair of named individuals, or for those who don’t want to end up personally liable if things go badly.
What mortgage criteria is involved?
It is possible to buy property as a limited company – it all depends on the buy-to-let company structure. Certain types of company will be more attractive prospects to lenders than others, so it’s important to have an understanding of what lenders look for before you think about submitting an application. The following criteria will be considered by most lenders:
- Any existing special purpose vehicle Ltd company
- Any existing trading Ltd company that isn’t an SPV
- Starting a new Ltd company at the point of purchasing
- Personal guarantees (whether the Ltd company has them)
- Loan to value up to 85% (since Covid-19 Pandemic this is currently 75% to 80%)
- Minimum rental income of 125% of mortgage payments
- Credit history (minor issues will probably be accepted)
For bespoke, expert advice on the criteria to secure a limited company buy-to-let mortgage, we will need to speak to you personally. Once we have gathered some key information from you, we can start thinking about what your options are. Contact Think Plutus today to get started.
Existing trading limited companies
If you already have a trading Limited company to your name and have a goal to either refinance or purchase a new property, you may find it tricky to get a mortgage. It’s a complex and specialist area of the market that people who lack knowledge and experience will find it hard to navigate.
Fortunately, Think Plutus is a whole-of-market mortgage broker with access and experience of arranging buy-to-let through limited company mortgages. We understand the ins and outs of these scenarios and have experience with the lenders who are willing to accommodate them in all their different forms. If you want to join our list of satisfied clients then we will be happy to help.
Most mortgage lenders that accommodate limited company buy-to-let products will only approve companies that primarily deal in property. That said, there are some lenders out there who will consider companies which trade in other industries. They won’t usually accept a company that trades in another industry but wishes to accumulate a property portfolio as well – this is likely to be regarded as a commercial deal and would require a dedicated commercial buy-to-let mortgage.
Learn more: How to Set Up a Limited Company for Buy to Let
Can an existing SPV limited company get a buy-to-let?
When a company trades exclusively in rental properties, it is known as a Special Purpose Vehicle (SPV) limited company. Lenders classify these companies in different ways, adhering to Standard Industry Classification (SIC) code as indicated by the registry at Companies House. The classification of a limited company will play a key role in the decision-making process of the lender, so it’s helpful to understand these SIC codes and how they are interpreted.
Common SIC codes include:
- 68100: Buying/selling own real estate
- 68201: Renting/operating Housing Association real estate
- 68209: Other letting/operating of own/leased real estate
- 68320: Management of real estate on a fee/contract basis
For companies classed as an SPV, it is now simpler to obtain a buy-to-let mortgage than it is for firms trading as other SIC categories. You will also find that there are several options available and the right one for you will depend on your circumstances.
Are there buy-to-let lenders that are dedicated to SPVs?
In the mortgage industry, there are several main players. The high street lenders that used to throw money in that direction now frequently offer finance only to existing customers, so you will need the help of a specialist broker to access their products.
The accepted loan to value (LTV) often starts at 80%, with rates varying significantly and coming in both fixed and variable formats. At the time of writing, the most competitive tend to be discount variables. Think Plutus is happy to handle all the legwork to find the best possible deal for your circumstances. Contact us today to get the ball rolling.
Existing non-SPV limited companies
There are only a handful of lenders willing to consider offering mainstream buy-to-let mortgages to a limited company that already runs as a trading business. With these lenders, the business does not necessarily have to be trading primarily in property either. You may find that a minimum deposit of 25% is required for these mortgage types since there are so few lenders willing to accommodate this market.
The cost of a less competitive niche is that lenders are not forced to offer such favourable terms to borrowers – however, we can help you source the best possible deal if this applies to you.
Starting a new property company for buy-to-let
Mortgages for newly-registered companies are possible with a few select lenders based on current criteria. Essentially, the limited company would have to be started at the point of application, and it would be best to have that company registered as an SPV with Companies House.
Providers will start lending at 85% loan to value, with affordability being based on the rental yield. To be acceptable, the rental income would need to be at least 125% of the mortgage payment amount. Be warned, however, that some lenders will insist on a higher percentage like 150% or even 180% in some cases.
If there is more than one director of the company, at least two of them will have to have credit checks performed to check their credit rating and demonstrate that the company is creditworthy. This is because the company itself will have no credit history of its own. The income of the company directors will also need to be verified in order to establish an underlying level of affordability.
If there is any adverse credit in the history of one or more director, it may still be possible to get the finance if the other criteria of the lender are met.
The pros and cons
For anyone interested in buying property through a limited company by obtaining a buy-to-let mortgage, you should consider the following pros and cons:
- The income may be more tax-efficient than personal income, particularly for those in the higher/additional tax bracket.
- Liability is limited as, if the company dissolves, it will not be forced to sell off personal assets unless guarantees or other security are given upfront.
- Where there are multiple buyers, this arrangement can make it easy to manage proportions of ownership and split the profits.
- If you subsequently look to take out a new personal mortgage, other lenders may not take the limited company mortgage into account as another commitment, increasing your potential personal borrowing.
- Fewer lenders to choose from, with more restrictive criteria and a limited choice of products that may mean higher rates that reduce the value on investment.
- There are likely to be more fees involved relating to legal costs and administration.
- It may be more complex to set up a mortgage this way, and you have pay a higher interest rate.
It can be challenging to source a mortgage for a limited company on residential and buy-to-let investment properties. This is because the number of lenders that are happy with this arrangement is low – in comparison with the full market, it really is only a handful of lenders.
IMPORTANT: We advise you to consult a tax specialist like your accountant to get a full picture of the advantages and disadvantages of purchasing property through a limited company. While some may find there are tax benefits, this won’t be the case for everyone.
New companies seeking buy-to-let limited company mortgages
The key issues with this revolve around the level of risk for the lender. If an entirely new company is seeking a mortgage, there will be next-to-no trading history or record of success. This is what the mortgage provider would usually base a decision on, so that absence will be a sticking point for lenders.
With no credit history, the lender has no real way to calculate the chances that the loan will be repaid. You will probably find that, in circumstances such as these, a lender that is willing to consider an application will require personal guarantees from the company directors. This will mean that, if the mortgage is not repaid, the directors become personally liable for the debt.
In some cases, additional security may be required, such as a larger deposit or equity in other properties. Make sure you understand the risks of securing against these things before committing to anything.
Exiting limited companies seeking buy-to-let mortgages
If a company already has a trading history and demonstrable experience with buy-to-let properties, a lender will be more willing to approve an application. However, some lenders will still insist on personal guarantees to minimise the risk.
The additional consideration in this situation would be whether the company already has a portfolio of properties. This is because some lenders put a cap on the number and/or total amount of mortgages a borrower or company can have at once.
Again, there are lenders that will accommodate professional landlords with mortgages regardless of how large their portfolio is. The experts at Think Plutus can help you find them if you get in touch and tell us about your situation.
Buy-to-let mortgage rates for limited companies
Every lender is different and will offer different rates on their products. It will depend on their lending criteria and the nature of your circumstances. An existing limited company that trades in buy-to-let properties and has a good track record of profitability will certainly be regarded more favourably than a brand new company.
To secure the best possible rates, the input of an expert mortgage adviser is crucial. Think Plutus has whole-of-market access, meaning we can always find the very best buy-to-let mortgages for limited companies on the market. Often, there are broker-exclusive deals that the general public does not have access to, and these can be opportunities for you to save even more.
Are limited company buy-to-let properties liable for stamp duty?
In a word: yes. Whenever a residential property is purchased, stamp duty is a factor. There is a sliding scale that determines the amount of stamp duty you have to pay, and it is based on the value of the property in question.
For limited companies, there is also a 3% surcharge which applies to the total purchase price on any residential property.
If you are uncertain about the level of stamp duty you would need to pay on your limited company buy-to-let mortgage, give us a call and our advisers can help you with the calculations.
Transferring a buy-to-let property into a limited company
Since the tax rules changed, the prospect of transferring a buy-to-let property into a company name is becoming more attractive to landlords. The relevant changes include loss of mortgage interest tax relief and wear and tear for any landlord with property in their own name.
When a buy-to-let is owned by a limited company, these changes do not apply. This is because the property is seen as a business, so any expenses incurred can be written off for tax purposes. The catch is that if you wish to transfer buy-to-lets that you already own, you will probably have to go through a process of sale and repurchase.
Doing this could incur a number of additional costs, such as:
- Stamp duty (including the surcharge we mentioned earlier)
- Capital gains tax
- Valuation and mortgage fees
- Legal costs
There are some scenarios where this would not be necessary. If you can prove that being a portfolio landlord is your full-time occupation, and you own sufficient property, there may be some relief that you qualify for.
Again, we recommend that you consult a tax specialist to assess the benefits and drawbacks of purchasing and managing buy-to-let properties through a limited company.
What impact does bad credit have on buy-to-let for limited companies?
If your credit file has evidence of previous bad credit, the options available to you may be even more restricted when purchasing a limited company buy-to-let. Adverse credit issues that may impact your eligibility for a mortgage include:
- Low credit score
- Adverse credit overview
- Debt/mortgage arrears
- Individual Voluntary Arrangements (IVAs)
- County Court Judgements (CCJs)
- Debt Management Plans (DMPs)
Some lenders will still consider you if the credit issue has not been satisfied as long as it has been registered over a certain time.
Speak to a buy-to-let expert about limited company mortgages
The information in this guide is generic and not everything will apply to every reader. If you have further questions and would like advice tailored to your individual circumstances, the experts at Think Plutus are waiting to hear from you. Getting the right advice can be the difference between approval and rejection when seeking a buy-to-let mortgage through a limited company. With our input, you will be on the best possible path.
Let us do all the hard work of finding the right lender and the best possible deal for your circumstances. We take a highly personal approach to every client and can work around your busy schedule to ensure you don’t miss out on the advice you need. Regardless of any complications you may have, we have whole-of-market access to find you the lender that will accommodate you. For expert buy-to-let advice you can trust, Think Plutus.