For many borrowers and investors, buying property through a limited (Ltd) company can lead to huge tax benefits.
Ltd company mortgages are perfect for borrowers who want to buy property as a group, rather than two separate individuals, or those who want to detach themselves from any personal liabilities.
Mortgages for existing Ltd companies…
If you’re looking to remortgage or purchase a new property and already own a Ltd company, getting a mortgage through a high street lender can be tricky.
Most Ltd company mortgage lenders only tend to approve companies that deal solely in property, but there are still a number of specialist lenders that will look at companies in other trading areas.
What about an SPV?
Companies that only trade in property are known as Special Purpose Vehicle (SPV) Ltd companies and they can be categorised in a number of ways by lenders, including:
- Buying & selling own real estate
- Renting & operating of housing association real estate
- Other letting & operating of own or leased real estate
- Management of real estate on a fee or contract basis
To access mortgages for your SPV, you will need to go through a broker who has access to specialist lenders. The usual loan-to-values range from 65-85% and vary in rate.
There are also a small number of lenders who look at ‘mainstream’ buy-to-let mortgages for Ltd companies that are already a trading business, and this doesn’t need to be a business that is trading in property either.
What if I’m a new Ltd company?
Mortgages for new Ltd companies are available through a small number of lenders but the company would need creating at the time of application and would benefit from being registered as an SPV.
Borrowing would usually be restricted to 65-85% loan-to-value and affordability will be based on the rental yield, with income needing to be 125% of the mortgage payment.
As the Ltd company will be new, at least two directors (or one if in sole name) will need to show their credit rating to ensure that that company is creditworthy, as the company won’t have a history of its own.
Lenders will also look to establish what the director(s)’ income is to make sure that there are no affordability issues.
What are the pros and cons of Ltd company mortgages?
Tax – the 10% tax that you pay on dividends is much more efficient than the tax that you pay on personal income
Limited liability – if the company dissolves, you won’t be forced to sell other personal assets
With numerous shareholders on the title deeds, it’s easier to manage individual proportions of ownership
Lenders for new personal mortgages may not
Restricted lenders and criteria
Increased legal costs and paperwork
Complicated process to set up
For advice on getting a mortgage through a Ltd company, speak to one of our expert advisers who will be able to help you with the next steps.