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What is a limited company buy to let mortgage?

Interested in building or expanding your property portfolio? A limited company buy to let mortgage allows you to buy a property through a limited company rather than your own name. You can use a limited company buy to let mortgage to either purchase or remortgage a property that is, or will be, let out. In recent years, these mortgages have become increasingly attractive to landlords due to changes in tax law. 

Limited company buy to let mortgages are less common in comparison to their standard buy to let mortgage counterparts. They are often only available through specialist lenders although there are some high street lenders who offer them. Due to their limited availability, it’s worth seeking advice from experienced mortgage advisers such as our team who can help. 

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How do limited company buy to let mortgages work?

Buy to let mortgages for limited companies work in much the same way as standard buy to let mortgages. You secure a loan against a property and then make monthly payments for the agreed term. Like with standard buy to let mortgages you’ll normally do this on an interest only basis.. You would therefore need to have a strategy for repaying the debt in the future. 
 
Limited company buy to lets differ to standard buy to lets as your solicitor registers them in your company name. Lenders will often ask the limited company’s directors to personally secure a mortgage taken out by a business via a Personal Guarantee. This is to ensure that if the business fails to keep up the monthly repayments, the lender is not left out of pocket. The directors could choose to use another property as security or could use their savings and often a company Debenture may be required. The consequences of defaulting on a limited company can be just as serious as defaulting on a standard mortgage. 

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What is the criteria for a limited company buy to let mortgage?

If you are planning to buy a buy to let mortgage through a limited company you will need to meet the individual lender’s mortgage criteria. Generally speaking, lenders will normally review the following: 

  • Your shareholding in a limited company such as an SPV
  • How many directors are in the limited company
  • What personal guarantees the directors can offer
  • The security property is worth at least £50,000
  • The type of property
  • Whether the property is a HMO ?
  • If you meet the lender’s minimum income threshold (this can vary from one lender to another)
  • The reputation and financial position of both you and your limited company 
  • That the rent will cover at least 125% of the expected mortgage payment 
  • The directors will need to meet the lender’s age criteria 
  • A minimum deposit of 20% of the property value 
  • You meet the minimum/maximum portfolio sizes 

This list is not exhaustive and can vary so it’s worth speaking to our friendly team who’ll advise you further. 

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What are the benefits of buying a buy to let property through a limited company?

There are several benefits to buying a buy to let through a limited company compared to buying as an individual. 

  • Mortgage interest is tax deductible. With a limited company buy to let, you can potentially offset the mortgage interest charged against your rental income regardless of your personal tax position.  
  • Pay less personal tax if you are a higher taxpayer. When you buy as an individual, the rental income you receive counts towards your personal income tax allowance. If you are a higher taxpayer, you will pay tax at the higher rate on your rental income. A limited company currently pays corporation tax at a lower rate. You then only pay income tax on what you take from the company so your personal tax liability can be lower. You may not even need to take any income from the company at this point. Always speak to a tax adviser for personalised advice. 
  • It’s more flexible. You have more choice over how you can use the profits. You can invest in new properties, renovate your current ones, save into a pension or choose to receive your profits via dividends. The added flexibility can also help when it comes to your personal tax planning. 
  • It’s better for succession planning. Properties owned by a limited company can more easily be transferred to family members in comparison to those owned by individuals. Family members can also be added as shareholders to the limited company so can also benefit. Upon transfer of property ownership, you may not have to pay stamp duty, inheritance tax or capital gains tax making the transfer more tax efficient. 
  • Reduced liability. If you buy a buy to let through a limited company, the company rather than the individual becomes the legal owner. In this way, you keep your personal and business finances separate potentially reducing your personal liability should the company run into difficulties in the future. This would not be the case however, if you give a personal guarantee. 
  • Higher borrowing amount. Are you a higher rate taxpayer or could your projected rental income make you one? If so, buying through a limited company could enable you to borrow more than if you purchased in your own name, due to the way in which mortgage lenders’ calculations work.   

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What is a Special Purpose Vehicle (SPV)?

Many limited company buy to let mortgages are only available to landlords who have set up their business as a Special Purpose Vehicle (SPV). These companies have been set up specifically for the purpose of buying, selling or letting out one or more properties. This will be identified by a SIC (Standard Industrial Classification code) code at Companies House. Common SIC codes for property companies are 61800, 68209, 68310, 68320. For specific advice around what type of limited company you should set up and the appropriate SIC code, speak to your accountant. IF you do not have an accountant, we can also introduce you to one. 

Are mortgage rates higher on limited company buy to let mortgages?

Limited company buy to let mortgage rates can be higher when compared to the deals available for standard buy to lets but this isn’t always the case. It really depends on how much you are looking to borrow against the property and the length and type of deal you are looking at. Some limited company buy to let mortgage providers may offer more competitive rates similar to those offered on a standard buy to let mortgage which is why it’s worth working with a mortgage advisor. It’s also important to consider the bigger picture including your tax position and future plans. Our experienced team will find the deal that’s right for you. 

Secure a limited company buy to let mortgage with specialist support from Simple Fast Mortgage

Limited company buy to let mortgages are more specialist in their nature and less common on the market compared to other types of mortgages. That’s why it’s worth working with the friendly mortgage team at Simple Fast Mortgage. We are aware of the challenges limited company directors can face when applying for buy to let mortgages and can help you overcome these. 

Our team has over 20 years of experience in finding the right mortgage for our customers and we can find the right deal for you. We understand that you have a lot of responsibilities as a business owner so we’ll deal with the mortgage paperwork for you. We’ll also liaise directly with the lender and your solicitor to help make the whole process go as smoothly as possible. Get in touch to start your application today. 

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