Limited Company HMO Mortgages
You can buy an HMO Property in a Limited Company. With benefits to taxation and more control. Landlords invest in HMO in a limited company for various reasons. A minority of Mortgage Lenders offer HMO Mortgages. A smaller minority offering Limited Company HMO Mortgages. In addition, many are only available via Mortgage Advisers. Thankfully More and More specialist mortgage lenders are entering the market.
Can I get an HMO Licence in a Limited Company?
Your HMO Licence will require a "responsible person" this can be you or your letting agent. The licence is for the property and to ensure the responsible person is fit and proper.
So a company can have a Licenced HMO Property, though it won't hold the licence itself. You will.
Can I get an Interest Only Limited Company HMO Mortgages?
Yes. You can obtain Interest Only Limited Company HMO Mortgages or on Repayment. Whichever suits your requirements and risk profile.
Will the lender require a personal guarantee?
Yes. When you buy an HMO through a limited company the directors and shareholders sign a personal guarantee.
This requirement is rarely waived. Unless it is very low LTV or the company owns other unencumbered assets. In such cases, a charge on the company as a whole will be taken.
Asking a lender to take a risk by lending you the money. Except do not to give those same guarantees. As you imagine is not looked upon fondly.
What deposit is needed for a Limited Company HMO?
The minimum HMO Mortgage deposit is 15% of the property value (85% LTV).
The rental amount can limit the greatest loan achievable, requiring higher deposits. Landlords with larger deposits can enjoy better Company HMO Mortgage products and rates.
Can I buy an HMO in a Limited Company?
Yes, though certain mortgage lenders.
The mortgage products differ from standard buy-to-let mortgages and standard HMO Mortgages. We can assist to find you the best mortgage for your circumstances.
As with a standard mortgage. You will be assessed based on your personal circumstances. This allows a Brand New Limited Company to be set up. With no assets or income and apply for an HMO Mortgage.
The mortgage lender will need personal guarantees from the Directors and shareholders.
You will typically lend money to the new company for the deposit from your personal assets.
Mortgage Lenders prefer companies that will only own and rent a property. They dislike trading companies doing other activities. Though a trading company can lend funds to a property company for the deposit.
Whatever the reason to buy in a Limited Company. You will want to have a discussion with your accountant to see if this will put you in a better position.
Should you buy an HMO in a Limited Company?
As the Government looks to take more of your rental income, landlords like you are looking at HMOs to increase rental yield. The question then is if you should buy the HMO in a Limited Company?
The primary reason for setting up an HMO Investment Company is to help manage your tax affairs. Your first stop should be your accountant.
Limited Company HMO Mortgages often have higher fees or rates. We work with you and your accountant to help them calculate the best.
Though its not all about tax...
The benefits for some are clear, the ability to retain profits. The ability to keep personal taxation low or keep yourself under a tax bracket. Was the main benefit when the Government changed how on the rental income you are taxed. The ability to deduct mortgage interest relief.
Other reasons include being able to pass on the shares of a company to a family member. While you may want the flexibility of bringing in shareholders to raise funds.
Should you buy an HMO in a Limited Company? Can only be answered if you have identified a benefit in doing so.
One landlord tells us, it's to stop worrying about utility providers affecting her personal credit score if a tenant fails to settle their final bill.
Step-by-Step Guide to buying through a limited company
Step 1 - Are you sure?
There are costs in moving a property from a personal to a limited company. The first step is to ensure you know the advantages and disadvantages. Proceeding with the best course from the outset.
Changing your mind later and moving property can result in Capital Gains Tax and Stamp Duty (SDLT). It's also not a one or the other choice. If you are a portfolio landlord you can have some in personal name and some in a limited company.
Step 2 - Incorporate a company.
You can Incorporate a limited company, a brand new one. Online, via your Mortgage Adviser or Accountant.
Mortgage lenders do not like lending to existing companies (doing other activities). You would not use the existing company but set up a new company. A Special Purpose Vehicle (SPV) used for Buy-to-Let only.
You first need a suitable company name, that is not used by any other company. It can not suggest any other business activity. "Bobs IT Consultancy Limited" won't work. Trademark names such as "Burger King Homes Limited" won't be acceptable.
You can Search the Register ( https://beta.companieshouse.gov.uk/ ) to see if a name is available.
On registration, you need to know the:
- Address of the company - This can be your house, your accountants or another address.
- At least one named Director - Can be up to 4.
- The shareholding split of the company - can be up to 4 shareholders.
- For every shareholder and director - Date of Birth, Place of Birth and Residential Address.
When you create the company, it will ask for your SIC Code. This identifies what company activity you will be doing. The SIC Codes you want are:
- 68209 – Other letting and operating of own or leased real estate.
- 68100 – Buying and selling of own real estate as well but Limited Company
You only want these activities, you don't want any more. Don't use others that contradict the company activity. Mortgage lenders won't like it if you also include Plumbing, etc.
You can use the standard memorandum and articles of association. No special changes are needed to the provided articles.
Step 3 - Set up a Business Bank Account
Company formation can take up to 48 hours. Once you have your company number, you can set up a bank account.
Your income and expenditure will go through this bank account. Such as mortgage payments and rental income. You can not use your personal bank account for mortgage payments.
You can ask your prefered bank - HSBC, Barclays, Santander or whomever. An appointment may take a while and you need the bank account to get the mortgage offered
If your bank is too slow. You can consider online banks such as Starling Bank or Monzo Bank for easy and quick setup.
Step 4 - Limited Company Buy to Let Mortgage
You need to tell your mortgage adviser from the outset. That you want a limited company buy-to-let mortgage. This is because not all buy-to-let lenders offer limited company mortgages.
The lenders that do offer the facility, often have the same products for a company or personal. Though not all and may result in higher rates or fess than in personal name.
The process is similar. You will receive a Key Facts Illustration (KFI) outlining the costs. On confirmation, your mortgage broker will proceed to an Agreement in Principle (AIP). Then onto a full mortgage offer and finally completion.
Step 5 - Conveyancing
Your small residential conveyancers may not have experience in Limited Company Buy-to-Let. It requires extra work with Companies House, Personal Guarantees and so forth.
Mortgage Lenders, due to the specialist work, have a panel of prefered conveyancers. Ask your mortgage broker if the conveyancer is on the Lenders panel or ask for a recommendation.
Considering the extra work, conveyancers may charge on average an extra £200 for works.
Your mortgage lender will want you to sign a "Personal Guarantee". One condition is you receive solicitors advice on the Personal Guarantee. The issue is it can not be the same solicitor your company is using.
Ask your mortgage adviser or conveyancer recommendations for a Personal Guarantee Solicitor. Prices range from £150 to £500.
Step 6 - Deposit
Before mortgage completion, you will need to send deposit money to your Conveyancer. You should talk to your accountant if that should be a "Gift" from you to the company or a "Loan". Each has different tax implications.
As with any mortgage, money laundering will need you to evidence the source of funds. Such as savings, inheritance or sale of another property.
Is your deposit coming from another company you own? talk to your broker about the lender's requirements. You may be able to loan it from one company to another, though most will need it to be a dividend to you. Then gifted or loaned from to the company.
Step 7 - Insurance
Before mortgage completion, you will have to have buildings insurance in place. This is a mortgage offer rule. The insurance needs to be in the company name, not your personal name.
Your mortgage adviser can help you get quotes. The insurer listing the company as a party to the insurance does not add costs.
Step 8 - Completion
Congratulations! Remember the company is a "separate legal entity". Your money is not its, and its money is not yours. You should pay all costs and receive income into the company bank account for simplicity. This will help you when filing accounts.
Your company may not have any money from the outset, to pay insurance, mortgage fees or renovation. You can gift or loan it from your personal funds to the company.
Try and keep it as simple as possible. Your accountant will thank you for separating personal and company finances.