You can decide to purchase and manage your Buy to Let property either as an individual or through a limited company – the decision will impact the revenue you can expect, and the option that is best for you will be down to your personal circumstances.
Recent changes to the taxation rules around tax relief on mortgage interest on Buy to Let properties, as well as the rise in Stamp Duty cost on second homes, has brought many landlords to the decision that running your Buy to Let business in a limited company could be the favourable option financially.
What is a Limited Company Buy to Let Mortgage?
Changes to the tax relief on Buy to Let mortgages and Stamp Duty in 2016 made expanding a property portfolio generally more costly for most landlords. Make use of a limited company allows you to avoid missing out on tax relief and structures your income in a more tax-efficient way. While there are pros and cons involved, many landlords are deciding to change how their business is set up and register in this way.
The fact is that a limited company Buy to Let mortgage is almost identical to the conventional Buy to Let mortgage that you have probably taken out as an independent landlord, but the important difference lies in how they assess your suitability for the loan. Mainstream lenders have typically steered away from lending a mortgage to a limited company, as the level of perceived risk is higher than that of lending directly to an individual. With most limited companies being run by self-employed landlords, it’s seen as more likely that the business may fail, and so finding a limited company Buy to Let mortgage has often been a tough process.
However, as more and more landlords are choosing to structure their business in this way, the growing demand for limited company Buy to Let mortgages has encouraged the market to shift somewhat, and more providers and products with competitive deals have entered the market. These specialist lenders take a broader view of your Buy to Let limited company and will consider many other aspects of your wider circumstances, taking into account your personal financial history and your personal income in order to get a realistic assessment of your suitability for a Buy to Let mortgage.
Can I get a Limited Company Buy to Let Property?
Yes – anyone is able to use a limited company to purchase and run a Buy to Let property. The only obstacles will be the criteria stipulated by each specific lender, and as this kind of mortgage is more specialist, the number of options open to you will be fewer than if you were applying for a Buy to Let mortgage as a private individual.
What are the criteria for a Limited Company Buy to Let Mortgage?
Generally, the criteria imposed by lenders for obtaining a limited company Buy to Let mortgage are very similar to those for a personal Buy to Let application. The lender will assess the anticipated rental income as well as the property itself in the same way and will make a mortgage offer to the applicant of typically between 75%-85% of the property’s value, depending on the actual or provisional rent charged.
When using a limited company, you will have to set it up with a specific Standard Industrial Classification (SIC) code, which will stipulate that the company can only perform the activities of buying and renting property. The codes applied will be:
- 68100: Buying and selling own real estate
- 68209: Other letting and operating of own or leased real estate
- 68320: Management of real estate on a fee or contract basis
What is a Special Purpose Vehicle (SPV) for Buy to Let?
In the mortgage industry, a Special Purpose Vehicle (SPV) is a limited company set up for the sole purpose of buying and administering Buy to Let properties – in effect, a limited company with restricted trading. An SPV is a way for landlords to ensure their income is as tax-efficient as possible.
Can I set up a new SPV to purchase a Buy to Let Property?
Yes, it is possible for anyone to set up a new SPV to buy a Buy to Let property, there are no real barriers. The question should be: would an SPV be the most suitable strategy for your individual situation? A conversation with one of our expert specialist advisors would be able to shed light on the best route for you, but you should also consult your accountant and possibly obtain legal advice to find out for sure if an SPV is the best idea for your business.
As long as your new SPV is established with the correct Standard Industrial Classification (SIC) code, then mortgage lenders should find it suitable to consider for a mortgage application.
During the actual mortgage application, much like for a normal residential mortgage, the company director(s) will be subject to the lender’s credit scoring test (which is always measured according to their own set of criteria), as your SPV will be a new company and as such will have no credit history of its own to take into account. The director(s) will also need to show proof of private income to establish an underlying level of affordability.
SPV or a Trading Limited Company?
SPVs (Special Purpose Vehicles) are limited companies set up and designed for one purpose: to administer all the financial activities and cash flow around your Buy to Let property business. As with any other limited company, you can draw a nominal income, which would be declared for personal income tax reasons, and retain the rest of the profits within your SPV to use for property maintenance, renovations and possibly reinvested in expanding your portfolio.
If your limited company starts to receive income and/or assets from other sources, then it will be considered a Trading Company. It is worth noting that many mortgage lenders will only be willing to extend a Buy to Let mortgage to an SPV, as introducing other business interests, income streams and channels for possible expense into your company could be perceived as making it a higher risk.
However, as with every aspect of the mortgages market, there are some lenders who are willing to lend to Trading Companies – they will simply carry out a suitable assessment of your affordability rating.
Limited Company Buy to Let Mortgage Rates
Inevitably, interest rates on Buy to Let mortgages available to limited companies will vary from one lender to the next, and, although this is still a growing market, the range of products available, and the lenders willing to provide them, is still much narrower than that for personal Buy to Let mortgages. Interest rates will depend on the loan-to-value ratio, the level of equity or deposit you can supply, and the length of any fixed rate period term.
With demand increasing, and more lenders entering the market for limited company Buy to Let mortgages, rates will be constantly changing to respond to competition. Our expert advisors will be able to take a thorough overview of your Buy to Let business and quickly advise you of the best lenders and products to suit your circumstances.
Limited Company Buy to Let Mortgage Lenders
The kinds of lenders who offer Buy to Let mortgages available for limited companies tend to operate in a very niche area of the industry, and it will normally only be possible to work with them via a specialist mortgage broker or other intermediary. The good news is that the number of possible lenders has been growing as more people recognise this way for landlords to structure their business as an acceptable option.
Limited company Buy to Let specialist
As a very niche area of the mortgage lending market, advice for obtaining a Buy to Let mortgage as a limited company is a specialist undertaking, and you will need to speak to advisors who have a lot of experience and knowledge in all the products available and sourcing the right mortgage to suit their clients’ circumstances. Even though the number of lenders offering Buy to Let mortgages for limited companies is growing, they will still normally only accept applications via a specialist broker or intermediary.
Our expert advisors are available for free, no-obligation consultations where we can review your circumstances and let you know what the best options for a limited company Buy to Let mortgage available to you are.