Limited company mortgages, whether you’re a limited company looking at buying a buy-to-let property, or you are weighing up whether you should become a buy-to-let Limited (Ltd) company, this article aims to guide you through some of the most common questions you might have.
What is a limited company buy-to-let?
A Ltd company buy-to-let mortgage is a mortgage lent to a business to purchase property with the intention of letting it out. The big difference here is that the loan is to a company and not an individual.
Whilst getting a mortgage can be slightly more complicated limited companies can get buy-to-let mortgages especially if they are set up in the right way through a special purpose vehicle (SPV).
Limited company SPV’S and SIC codes
Companies who purely deal in property are generally set up as a special purpose vehicle.
Typically they register with Companies house under a Standard Industry Classification code or SIC code. It means that lenders can easily classify a company making it more straightforward than firms who are registered on under other SIC codes.
If you were setting up as a new limited company dealing in properties, you would be looking at SPV’s under SIC codes such as:
- 68100 – Buying and selling own real estate
- 68201 – Renting and operating of Housing Association real estate
- 68209 – Other letting and operating of own or leased real estate
- 68320 – Management of real estate on a fee or contract basis
Limited company buy-to-let lenders
Typically, most mainstream lenders will not approve a limited company buy-to-let set up and will only consider applications on a commercial basis.
However, if you look to the wider market there are a small number of limited company mortgage providers will lend on a buy to let basis.
These lenders will generally want to know:
- Have you got a SPV company already set up?
- If so when was it registered?
- Does your business trade in anything else?
- Does your SPV own any other property?
- Do you personally own any property, residential or buy to let?
- What are the potential directors’ personal incomes?
Limited company buy-to-let mortgage criteria
Whilst lending for a Limited company buy-to-let is possible, it will depend on how the company is structured.
Limited company mortgage lending criteria for buy-to-lets will usually be:
- Existing special purpose vehicle Ltd companies – most buy to let lenders will only approve those companies set up as a SPV who solely deal in property. However, you may still be asked for personal guarantees and there may be a limit to the number and total amount of mortgages each company may have.
- Existing trading Ltd company’s (Not set up as an SPV) – there are only a small number of lenders who will consider companies trading in other areas, though it may be that you need a commercial deal or commercial buy to let.
- Starting up a new Ltd company at the time of purchase – this would need to be completed at the time of application as an SPV.
- Ltd companies with or without personal guarantees.
- Up to 85% loan to value (LTV).
- Rental income that at least meets 125% mortgage payment – lenders will base affordability on rental yield. This will also account for potential times where the property is unoccupied.
- Minor adverse credit issues.
- 25% minimum deposit.
It’s worth noting that some lenders restrict the type of property and usage with limited companies and don’t like homes of multiple occupancy. They can also restrict whether they are happy to lend if the Ltd company has mortgages with any other lenders and sometimes only approves it if they are the sole lender to the company on all properties.
It goes without saying that a company with a proven track record or successful trading history will likely be offered better rates, just as it would for a personal mortgage from someone with good credit history, a healthy income and affordability.
That being said, lenders will all offer different interest rates. Accessing competitive rates and limited company buy to let deals is something a specialist broker would be able to find, especially ones with access to the whole of market lenders.
The pros and cons
Though it may be slightly more complicated, setting up a buy-to-let limited company who deals in residential property does come with advantages.
Buy-to-let Limited company mortgages advantages:
- You pay corporation tax on rental income, not income tax. There is no upper threshold as opposed to personal income tax and it stands at 19%.
- You can offset many expenses that you can’t with a privately-owned rental property.
- Limited liability if the company dissolves you’re not forced to sell personal assets.
- Retaining any profits within your business protects tax liabilities. This helps if and when you want to expand your portfolio.
- It makes it easier to manage proportions of ownership and shares of any profit.
However, like with anything there are also disadvantages, such as:
- There is a limited pool of lenders who have strict criteria, limited products and can mean greater rates and costs.
- Increased potential fees such as solicitor and legal costs.
- A limited company can be more complicated to set up.
Careful consideration should always be taken when deciding between limited company buy to let vs. personal ownership. Not only should you speak to a qualified accountant but speaking with a mortgage broker who specialises in this area can help clarify your options.
Do limited companies pay stamp duty on buy-to-let properties?
The short answer is yes.
What stamp duty a limited company pays depends on the value of the property and there is a sliding scale including a surcharge. Usually, it would start at £125,000, however, in attempts to reignite the housing market the government have increased thresholds until 31st March 2021 to £500,000.
If you’re unsure how much stamp duty you will need to pay advisors can calculate it for you.
Setting up a limited company buy-to-let
If you’re applying for buy-to-let limited company mortgages as a completely new limited company things can get a little tricky. You don’t have any trading history that a lender can base any lending decisions on.
This puts a greater risk on the lender as they cannot determine the chances of repayment.
However, there are possible ways lenders will overcome these issues:
- Having personal guarantees from directors, meaning if repayments cannot be met by the company it then becomes their personal responsibility.
- Security in the form of equity from other properties.
- Having a larger deposit.
How do I transfer my buy-to-let property to a limited company?
If you are wondering if you should set up a ltd company for buy-to-let there are things to consider.
There are several benefits to moving your buy to let properties to the umbrella of a limited company, not least because of the tax changes for buy-to-lets owned by individuals. These changes do not affect limited company buy-to-lets as they are a business and as such the expenses can be written off.
However, if you already own several individual buy to let’s and are looking to transfer them to a limited company this can mean sale and repurchase, incurring costs such as:
- Capital gains tax
- Stamp duty
- Legal fees
- Valuation and mortgage fees
It is therefore advisable to speak with a qualified accountant to assess the benefits and drawbacks to switching to a limited company.
Mortgage advisors will also be able to help you understand your options for limited company mortgages and will match you to lenders based on your circumstances. A whole of market broker will also have access to high street lenders right through to specialist lenders.