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The rules around landlord finance can be complicated from unusual properties, rental stress tests, limited company buy to let and more so for portfolio landlords. Your circumstances can limit options from minimum income, credit score and experience.
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What is a Limited Company buy-to-let mortgage?
When buying a property to rent out in a limited company, you will often need a Limited Company buy-to-let mortgage.
A minority of Mortgage Lenders offer Limited Company buy to let mortgages. These mortgage products may differ from standard buy-to-let mortgages.
Bespoke Finance can help you register a Limited Company (also known as an SPV), or your accountant. It is essential to register the correct SIC Codes and have a bank account in the company open for the mortgage direct debit.
As with a standard mortgage, they will base the lending on your personal circumstances. So a new SPV Company with no assets or income, set up on the same day, for example, is excellent. They will require personal guarantees from the directors/shareholders.
You can lend money to the company for the deposit from your personal assets.
Mortgage Lenders prefer companies that will only own and rent property. They dislike trading companies doing other activities.
Is it harder to get a Buy to Let in a Limited Company?
It's not generally more difficult in term of criteria than purchasing in a personal name. In some instances (such as rental stress tests) it may be easier to buy in a Limited Company.
The number of mortgage products is restricted compared to the personal name, though it has been getting larger.
Trading Company or SPV Company?
Mortgage Lenders do not like to lend to Trading Companies. They see the other activities as a potential risk.
The preferred method is a Special Purpose Vehicle (SPV).
You can obtain BTL Mortgages in a Trading Company, but your mortgage product options are limited.
What is an SPV Limited Company?
A Special Purpose Vehicle (SPV) is a Limited Company incorporated at Companies House as a Buy to Let Holding Company.
The lender requests this Company’s activities be limited to undertake property rental activities only.
If the company, for example, sold Widgets as well; that would not be an SPV but a trading company.
Who owns the property?
An LTD Company is a “separate legal entity” that obtained finance to purchase the property in its name.
You will have a personal guarantee to the bank, that does not mean you have personal ownership rights.
So the Company owns the Property, but you will hold the Company based on the % of shares.
Each shareholder will need to be named on the application, provide details and a personal guarantee.
You can be 100% shareholder.
Will the lender require a personal guarantee?
Yes - when buying property in an SPV Limited Company the directors and shareholders are often required to sign personal guarantees.
The personal guarantee requirement is mostly compulsory, except in exceptional cases where the Loan to Value (LTV) is very low. In such cases, a charge on the company as a whole may be taken - though this is a rare occurrence.
Asking a lender to take a risk by lending you the money, but requesting to not to give those same guarantees personally. As you imagine is not looked upon lightly.
A personal guarantee is a backstop - if the asset depreciates or missed payments. The lender has the equity (minimum 15% Deposit) as a safety buffer first. Therefore offering a personal guarantee may be seen as a medium risk. With the personal guarantee released on full repayment to the lender (such as selling the property).
In recent times the buy-to-let mortgage market has seen a significant switch in how landlords buy properties. An increased amount of corporisation.
Landlords are now, in more significant numbers, forming Limited Company's to buy, hold and rent out properties. The companies are typically new, perhaps a day old. Have no income or assets!
So how can the company get a mortgage? Mortgage lenders ask for a Personal Guarantee.
A personal guarantee gets around the "limited liability" an LTD Company typically offers and puts you the shareholder/director on the line for the debt.
Allowing a mortgage lender to assess your circumstances, your income and your assets. It has given them reassurance that in the event of a default they can pursue any unpaid amounts from you.
Most mainstream mortgage lenders require a personal guarantee. Though not all!
A personal guarantee, as above, aim to limit the lender's liability and risk. Obtaining a buy-to-let mortgage without a personal guarantee is possible If purchased at Low Loan to Value (LTV).
As a general rule, the few lenders that offer this, are looking at 60-65% Loan to Value (LTV).
With equity of at least 30-35% in the property, the lender can feel secure that they will get their funds back in the event of a default.
The reason for such substantial equity required it to allow them to add any missed mortgage payments, fines and allow for housing price fluctuations or damage to the asset.
With the rarity of lenders offering buy to let mortgages without a personal guarantee. There is a premium to pay, at mortgage rates today an LTD Co SPV at 65% can enjoy mortgages at 2.49% without a personal guarantee 2.94%.
Limited Company Buy to Let FAQ
Landlords nationwide are discussing the Advantages and Disadvantages of Limited Company Buy-to-Let. We will look at some of the questions raised.
Can I buy a property in a Limited Company?
Yes. Lenders offer products for purchasing properties in companies.
Are Ltd company buy to let mortgages hard to get?
No. Mortgage lenders have products that can buy properties in a Limited Company.
There are fewer mortgage lenders but the criteria and products are wide-ranging.
How do I set up a Limited Company?
You can ask your Buy to Let Mortgage Broker at Bespoke Finance to incorporate a company on your behalf.
Company Incorporation at Bespoke Finance is Free on Application.
You can incorporate £15+VAT online or ask your accountant.
The company can not undertake any other activities, just the buying and renting of property.
As such you are required to use one of the following SIC codes:
- 68100 - Buying and selling of own real estate
- 68209 - Other letting and operating of own or leased real estate
When you incorporate you don't often provide a SIC code, if the lender requires it you can do so by filing on annual returns.
Ask your mortgage broker for advice.
A new company has no history or income!
That is right! Mortgage Lenders prefer a none trading companies.
They want a Special Purpose Vehicle (SPV) a company that does nothing other than renting out property.
If its a new company with no history - then that is perfect. If you already have a company renting property (only) then that is fine too.
If you already have a trading company, perhaps you are an IT Consultant. It will have history, liabilities and other activities.
That is risky to mortgage lenders.
How old does the limited company have to be?
Mortgage Lenders will accept limited companies as soon as they have been set up. We allow day 1 SPVs.
But... Id prefer my Trading Company to buy a property?
You can! but your options will be limited.
Other options may include:
- Trading Company, incorporating a SPV it owns.
- Trading Company, providing loan to your SPV.
You should talk to your mortgage broker to discuss such options. The route may be what the available lender prefers.
How is affordability assessed?
Lenders assess affordability on Limited Company Buy to Let mortgages on two things:
- You Personally! (and any other shareholders/directors)
- The Property.
Mortgage lenders affordability test is no different to buying in a personal name.
Lenders will want to ensure you have some income to cover void periods and others have minimum income requirements.
You will be credit checked as usual.
Lenders will stress test the rental income. ( How is Buy-to-let Affordability assessed? )
Does a limited Company mean Limited Liability?
On application to a mortgage lender, you will wave your "limited liability".
Every shareholder and director of the company will be required to provide a Personal Guarantee.
That means - if your rental company fails to pay the mortgage. They can then pursue you.
Will they take a charge on my home?
No. Providing a personal guarantee does not mean a lender will take a charge on your home.
If a lender has to repossess a property in a limited company and is still owed money. The person offering the Personal Guarantee will be liable for that money.
This is the same if you buy in your own name.
How does the deposit work?
You will need a deposit! but how do you get it into the company.
Many mortgage lenders insist you GIFT the deposit funds to the company from your own savings.
Accountants prefer a different way.
Some mortgage lenders allow you to LOAN the deposit funds to the company from your own savings.
This will make your accountant happy, repaying the loan back to yourself from the company is tax free.
Ask your accountant for advice on tax proposition. Your mortgage broker will confirm which lenders allow which route.
Will I need a bigger deposit?
No. You can get Limited Company Buy to Let at 85% Loan to Value.
You will find better mortgage rates and more options at 75% LTV or lower.
Costs: Personal v Company
The costs for a Limited Company Buy to Let tend to be higher than in a personal name.
Your mortgage broker may charge extra, Bespoke Finance charges the same fee regardless.
A mortgage lenders Arrangement Fees and Mortgage Rates are typically higher for a Limited Company - from 1% to 1.5%.
In recent months this has started evening out. It was announced Aldermore was to join Paragon Mortgages in charging same interest rates.
Your Conveyancing Solicitor may charge higher fees. This is due to the increased legal complications. ( Why is Conveyancing more expensive? )
You will have Company Requirements such as filing Annual Returns and Filing Accounts. There is a small fee at Companies House. The greater costs are for professional accountants to complete these for you.
Whose Money is it?
A limited company has its own legal personality, which is separate to the individuals who participate in it.
You should establish a separate bank account for the separate legal entity.
You can not spend the rent the company earns on things other than business activities.
If you do so it will be a Wage or Benefit and this will effect your tax position.
It is the companies money. It is only yours when it is transferred to you and taxed accordingly.
How does the Tax Work?
You need to talk to your accountant about Tax Planning in a Limited Company.
After legislative changes on Mortgage Interest Relief - Limited Companies became a popular option.
This arises as companies are able to "retain profits".
This allows you to plan with your accountant what the company will pay you. You can plan what your personal tax position will be.
Do I need a Separate Bank Account?
Yes. Your own bank should be happy to provide you with a Company Bank Account.
It is typically not a mortgage condition but can affect your tax position.
It will make it easier to separate the companies funds from your funds. Especially when filing accounts for simplicity.
How do I sell a property?
You can sell a property as you would do normally.
The profits will belong to the Limited Company and not you personally.
You can re-invest or withdraw monies and be taxed accordingly.
A different route is, you could sell the whole company. The buyer instead of buying the property, buys the company that owns the property.
You will need advice. Put simply you sell then the shares and on the same day the buyer re-mortgages.
The refinance will remove your personal liability on the existing mortgages.
What if I re-mortgage or get a 2nd Charge?
Any further equity you release will belong to the Limited Company and not you personally.
You can re-invest or withdraw monies and be taxed accordingly.
How many people can be part of the company?
You are typically looking at a maximum of Four Shareholders / Directors. Which opens up opportunities for Joint Ventures.
You can have more parties but lending options reduce.
Can I get Bridging Finance in a Limited Company?
Yes. Limited companies can get bridging finance.
This is typically used if the property is uninhabitable and requires work to make it mortgageable.
Or if you require to purchase the property fast, such as in an auction.
Can I buy a HMO in a Limited Company?
Yes. Limited Companies can get mortgages for buying a House of Multiple Occupation (HMO).
At the time of writing Limited Companies can buy HMO properties at 85% LTV.
Can I transfer property from personal to Limited Company?
Yes and No.
You can not transfer them as a company is a separate legal entity.
You can re-mortgage the properties into a Limited Company.
Some lenders require you to have the deposit in cash. Others allow a paperwork transaction - using the same equity.
This can be known as "gifted equity" or in rare cases "loaned equity".
Talk to your Mortgage Broker about SDLT and Capital Gains