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Buy to let mortgages for Limited Companies

All you need to know about Limited Company borrowing

Getting started with Limited Company mortgages

Limited Companies are an increasingly popular borrowing structure amongst landlords and property investors. 

Typically, landlords will choose to set up an SPV (Special Purpose Vehicle) Limited Company. In the mortgage sector, this is a company that is set up with the sole purpose of purchasing and renting out property. For the most part, buy to let lenders offering mortgages to corporate vehicles prefer SPV Limited Companies as they’re easier to understand and underwrite, as they’re perceived as lower risk. 

As Limited Company borrowing has become more popular, more lenders have entered the market space and now offer Limited Company product ranges. As such, interest rate pricing has become more competitive. 

What are the benefits of Limited Company Borrowing? 

There are several reasons why landlords opt to invest using a Limited Company rather than in their own name.

One of the main draws is the possible tax benefits. With a Limited Company structure, you pay corporation tax on rental income, which can be more cost-effective if you fall into the 40% higher-rate income tax band. Please seek professional tax advice before making any property investment decisions.  

You also benefit from more generous lender stress tests when applying using a Limited Company structure. Where individual applicants are stress-tested at 145%, Limited Companies are assessed at 125%, meaning you could borrow more per pound of rent.  

Are Limited Company mortgage rates more expensive? 

Not necessarily. While Limited Company mortgage rates are typically more expensive than those for individuals, the pricing difference is not significant. Many lenders will even offer the same rates to both individual and Limited Company borrowers. 

How do I set up a Limited Company?

Setting up an SPV Limited Company is relatively easy and can cost you from as little as £12 if you register yourself via Companies House. You will need to: 

  • Select your trading name (that’s not already in use)
  • Enter the Company’s registered address
  • Name the Company directors and shareholders

After that, you will need to choose the right SIC code for your buy to let business. There are a few other steps to go through when registering – read our full blog on setting up your SPV Limited Company to purchase property here. 

Frequently asked buy to let questions…

Can I borrow through a newly set up Limited Company?

Yes, there’s nothing stopping you from setting up a Limited Company today and purchasing a property through it tomorrow. As most lenders require a personal guarantee, they underwrite the applicants (the company’s directors and potentially its shareholders) behind the Limited Company as opposed to the company itself. Consequently, the mortgage is underwritten in the same way to an individual application. Read our blog on borrowing through newly set up Limited Companies here for more information. 

Can I simply transfer my personally owned properties into a Limited Company?

No. This must be treated as a sale and purchase transaction. The process is the same as if you were buying a new property, whereby your Limited Company will have to purchase the property at market value, and be subject to capital gains tax and the stamp duty surcharge. Whether this the right decision for you will wholly depend on your tax situation, so please seek professional tax advice before making any property investment decisions. 

SPV Limited Company vs Trading Companies – what’s the difference?

An SPV (Special Purpose Vehicle) Limited Company is a Company set up for the sole purpose of buying and letting property – that’s it. Lenders typically prefer to lend to these types of Companies as they’re much easier to understand and, therefore, quicker to underwrite, as there’s less risk involved. You will typically need to provide an unsupported personal guarantee with your mortgage application, as lenders will be more concerned with the individuals who make up the Company to stress-test the income than the Company itself. 

A Trading Limited Company could be any other business you own. Whilst some lenders may offer to Trading Limited Companies, other view these as too high risk, as there is more that could impact your ability to repay your mortgage. There’s also more to review from an underwriting perspective, and these transactions are therefore more complex than with a standard SPV Limited Company application. There are plenty of benefits that come with investing in property via a Trading Limited Company, for example, you retain the profits in your business, but it’s best to speak to an exert tax advisor before making any property investment decisions. To read more about your options when investing via a Trading Limited Company, visit our blog here.

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