What is a buy-to-let mortgage for Limited Companies?
A buy to let mortgage for limited companies is a way to take out a mortgage on properties through a limited company rather than in your own name. They’re used for buying and remortgaging residential properties that are let out already or will be ready to let within one month of completion.
How does it work?
Landlords set up an SPV (Special Purpose Vehicle) Limited Company. This is a company that is set up with one sole purpose – purchasing and renting out property. Buy-to-let mortgage lenders who offer mortgages to corporate vehicles usually prefer SPV Limited Companies because they are often perceived as lower risk. This makes them easier to understand and underwrite.
Benefits of a Limited Company Buy to Let
There are many reasons why landlords decide to use a Limited Company to invest in property over using their own name, such as:
· Tax benefits: Through a Limited company structure, investors pay corporation tax on rental income which is often more cost-effective if they fall into the 40% higher-rate income tax band. This is often a more beneficial option for portfolio landlords.
· More generous lender testing: Individual applicants are stress-tested by lenders at 145%, but Limited Companies are assessed at a lower rate of 125%. This means you might be able to borrow more as a Limited Company.
When would a Limited Company structure not work for me?
While it’s an effective solution for many, getting a buy-to-let mortgage through a Limited Company isn’t always the right option for everyone. Here are a few examples where you might be better off with a personal mortgage:
· You only have a small portfolio and the admin of setting up a limited company isn’t worth it.
· You have low value properties for which the costs of running a limited company aren’t worthwhile.
· You’re only planning to keep the investment for the short term with a view to selling it in the near future.
· You’re on a low tax bracket so the tax advantages from a limited company aren’t significant enough.
Are limited company mortgage rates more expensive?
No, not necessarily. While it’s true that mortgage rates for Limited Companies can be higher than for individual mortgages, it’s not a significant difference. There are even some lenders who offer the same rates to both Limited Companies and individual borrowers.
This method of borrowing is growing in popularity and an increasing number of lenders are offering Limited Company mortgage products – good news for borrowers, as it’s driving more competitive rates!
How can I set up a Limited Company?
If you’ve decided you would like to get a buy-to-let mortgage through a Limited Company rather than taking one out in your name, you’ll need to begin by setting up an SPV limited company.
This is easy to do. You simply need to sign up with Companies House – it costs £12.
Then you’ll need to select your trading name, submit details such as the company’s registered address, the company directors and shareholders and then choose the right SIC code (Standard Industrial Classification of Economic Activities) for your buy-to-let business.
It’s really that simple!
Speak to The Mortgage Hut to get a buy-to-let Limited Company mortgage today!
At The Mortgage Hut, we have teams of mortgage advisors who are experts in investment property mortgages and buy-to-lets and we help hundreds of investors get the right mortgage for their property portfolio.
With access to a wide range of lenders and products, we’ll help you find the right buy-to-let mortgage product for you, match you with a suitable lender, and guide you through the application process.
FAQs
Can I get a Limited Company mortgage on a newly set up Limited Company?
Yes, there is no time limit on how long a limited Company has to be active for before you can borrow through it. You could set one up today and purchase a property tomorrow! The mortgage is underwritten the same way as it would be with an individual applicant, underwriting the applicants as opposed to the company itself.
Do I need a deposit for a limited company buy-to-let mortgage?
Yes, like with any property purchase and mortgage, you’ll need to put down a deposit. For buy-to-let mortgages, a deposit of 25% of the property price is usually required, but be prepared to pay between 30% and 40% as requirements will depend on your risk profile.
Can I just transfer my personally owned properties into a Limited Company?
No. This mortgage product can only be used for a transaction, so the process is the same as if you were buying a new property. Your Limited Company will need to purchase the property at market value and pay capital gains tax and stamp duty surcharges. If you’re not sure whether this is the right decision for you, our team at The Mortgage Hut will be happy to advise.
