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Can I use my business to get a buy-to-let mortgage?
What are the requirements for a company buy-to-let mortgage?
The requirements will vary based on each lender, but in general, it all depends on the buy-to-let company structure.
Some of the acceptable structures are as follows:
Using an existing special purpose vehicle limited company
Using an existing trading limited company (not an SPV)
Establishing a new limited company as part of the purchase
Using personal guarantees for your limited company
Using no personal guarantees for your limited company
Applying for up to 85% LTV
With rental income at least 125% of the mortgage payments
With or without an adverse credit history
How can existing limited companies secure a buy-to-let mortgage?
If you are already running a limited company and would like to refinance or begin the process of buying a new property, the process can be tough.
It all depends on approaching the right advisors and brokers who can match you with the right lenders. In most cases, many limited company buy-to-let mortgages will only be approved for companies that deal solely with the property. However, a growing number of lenders are opening their eyes to other industries.
It may be the case that a commercial deal would be more appropriate for your situation.
Can a special purpose vehicle purchase a buy-to-let?
If you only trade in rental property, your limited company will be known as a special purpose vehicle, often shortened to SVP. These will be classed in different ways by different lenders. All of these will follow the same Standard Industry Classification, which will be assigned to the company when it is registered with companies house. A sample of these include:
68100 – Purchase and sale of real estate
68201 – Renting and operating of housing association
68209 – Another form of leased real estate
68320 – Management of real estate for a fee or on contract.
It’s far easier to secure buy-to-let mortgage when your company is classed as an SVP. As outlined above, it’s rare for lenders to offer buy-to-let mortgages to those outside of the real estate industry.
Where can I find dedicated SPV buy-to-let lenders?
There are several lenders that specialise in SVP buy-to-let lending. High street lenders have slowed down their interest in SVP buy-to-let and now focus on more clear cut lending. It is now more common to find this type of mortgage with specialist lenders. If you are looking for a SVP buy-to-let mortgage, you should speak to a broker with in-depth knowledge of the industry. There is no replacement for industry expertise when it comes to this type of specialist lending.
What are the pros and cons of buying a buy-to-let through a limited company?
Before making the decision to finance a property with a limited company buy-to-let mortgage, it’s important to consider the following pros and cons.
Tax – this method of purchase is far more tax efficient, particularly for high earners.
Limit liability – if the company is dissolved, you will have limited liability and can keep your personal assets separate to the company. The only way this will change is if you offer personal assets as a guarantee.
Multiple shareholders on the title – this can make it much easier to manage the share of profits etc.
Increased personal borrowing – the directors may find they can increase their personal borrowing as lenders won’t see these payments as existing commitments.
Limited choices – there are fewer lenders offering this type of mortgage, so you may not be able to shop around.
Higher costs – there are more associated with legal costs as a result.
Complicated – you will need expert advice to be able to navigate the process.
Can new limited companies purchase buy-to-let property?
In theory, yes. However, as we’ve outlined above, this comes with a higher level of risk to the lender. As a result, they may want to see more guarantees from the company directors on a personal level. With no trading history to show the viability of the investment, lenders will have to base their decision on different factors.
This can include things like the credit scores of the directors, or their willingness to put personal assets up as security. This can negate the positive benefits of forming a limited company, as the personal and business assets will then be linked. Instead, some lenders will request a larger deposit and offer a smaller loan to value.
Can I get a buy-to-let mortgage using an existing company?
When the company already has a trading history and experience within the industry, it becomes far easier to secure this type of mortgage. Lenders are more inclined to approve these applications as they see them as a viable investment.
If your company already owns other properties, you can use these as security for future lending. However, some lenders will be wary about lending to companies that already have a number of mortgages.
By approaching the right lenders, you can find those willing to accommodate professional landlords and property companies with existing trading history.
What rates are payable for buy-to-let commercial mortgages?
Rates will vary depending on your individual circumstances, but they will typically be higher than personal mortgages. Lenders will base their decision based on their level of risk, therefore a newer company with limited trading history will be considered higher risk than a long established company with more than three years of accounts.
In order to secure the best rates, you need to find a lender that is accustomed to your unique circumstances. This will allow them to offer you a bespoke deal.
Will I have to pay stamp study?
You will need to pay Stamp Duty on any residential property. This is calculated on a sliding scale based on the overall value of the property.
Up to 125,000
£125,000.01 to £250,000
£250,000.01 to £925,000
£925,000.01 to £1,500,000
Don’t forget the surcharge for buy-to-let property
All buy-to-let properties are subject to a 3% surcharge on the total purchase price.
Can I move my buy-to-let property into a limited company?
If you already own property and are wondering if you would be better transferring ownership into a private company, we hope to clear up some of this below.
With recent changes to tax rules, it’s becoming increasingly more attractive for landlords to move their buy-to-let properties over to a limited company. Landlords recently lost mortgage interest tax relief, so it can be easier to manage this as a limited company since most expenses will be written off for tax purposed. To transfer the property, you will essentially need to go through the sales process and purchase it from yourself. This will mean paying all of the costs associated with the sale, including:
Stamp duty and the surcharge
Valuation and mortgage fees
These costs can often offset the savings, so it’s important to consider if this option is worthwhile for you.
Will poor credit impact my buy-to-let for limited companies?
If you have a poor credit score, this can impact your ability to secure a good rate on your mortgage. If you are starting a new company and have no trading history, your personal credit score will be taken into consideration. The following factors will damage your chances:
Previous mortgage arrears
There are poor credit lenders out there who will look past your credit history and focus instead on the affordability and viability of your venture. However, they will want to see that these issues are well in your past and not recent.