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Limited Company Buy to Let Mortgage
Anthony McQuilliam joins us to talk all about limited company Buy to Let mortgages.
Podcast approved by The Openwork Partnership on 15/10/2024
Can I get a Buy to Let mortgage in a limited company? Is it difficult to do this?
When you’re looking at buying a property under a limited company, the process is not dissimilar to buying in your own name. The only real difference is that you have to set up the limited company, and that gives you access to slightly different lenders.
For some people, getting a mortgage under a limited company brings quite a few tax benefits.
How do limited company Buy to Let mortgages work? What are the eligibility criteria?
It’s not too dissimilar to buying a standard traditional Buy to Let. Obviously, you have to have the limited company set up before you make the application.
Despite a lot of misinformation out there, you do not necessarily need a trading history – it could be a brand new limited company that you’ve just set up. Lenders fully understand that you use an SPV or Special Purpose Vehicle solely to hold your assets.
Every lender is completely different, but already owning your own residential property massively helps the cause. It opens the doorways up to the vast majority of lenders. Some lenders are happy if you’ve got no income at all, and other lenders may want you to have at least £25,000 income to qualify.
When it comes down to affordability, it’s exactly the same as in your own personal name – the rental income needs to cover a certain amount more than the mortgage payments. Lenders stress test this, checking that if rates were to go up, would the rental income still more than cover everything?
Lenders are actually more lenient for a limited company and will often lend you more than in your own personal name, especially if you’re a higher rate taxpayer.
How much deposit do I need for a Buy to Let through a limited company?
Generally it’s in the region of 25%. If you’ve got a 25% deposit, it opens the doorways up to the majority of lenders. A few niche lenders will allow you to get a Buy to Let mortgage with perhaps a 20% or 15% deposit.
What you find with those particular products, because they’re so few and far between, is that the interest rates on them tend to be a lot more expensive.
At the time of recording in September 2024, the higher the interest rates are, the less chance you’ve got of actually being able to borrow the money you need. That’s because the mortgage payments are more expensive, so the rent needs to be a lot more.
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Is it worth setting up a limited company for Buy to Let?
It depends on your personal situation. For some people it may not be beneficial. It’s always worth speaking to an accountant and explaining what you’re looking to achieve and where you’re at at the moment.
It’s not necessarily right for everybody – the whole purpose of buying under a limited company is because of the different tax rules that come with it. From experience with our customers, if you’re a higher rate taxpayer, it’s in your favour to do that.
Also, if you’re looking at growing a big portfolio in the long run, it could be beneficial. Speak to an accountant to get more details. We can’t give too much advice on that because it all comes down to your current tax status, what it will be in the future and making appropriate plans around that.
Do limited companies pay stamp duty on Buy to Let? What other costs are involved?
We get asked this question a lot – people often think that if they set up a limited company and buy the first property under that, they haven’t got to pay stamp duty anymore. But unfortunately, that’s just not the case.
You still have to pay the additional rate for a Buy to Let property. Other costs involved when you are looking at Buy to Let, are mortgage broker fees; standard valuation fees with most lenders, and solicitors, which would usually be in the region of about £2,000.
One of the biggest differences with buying in a limited company rather than your own personal name – at least at the moment – is that product fees are substantially more. Rather than the £999 to £2,000 product fee you’d get in your personal name, limited company Buy to Let fees go up to 4% or 5% of the overall loan. That could work out to be really expensive.
What are the benefits and drawbacks of owning Buy to Let property through a limited company?
The big benefit, as we mentioned, is around the tax. If you’re buying in your own personal name and you achieve £1,000 per month for rent, and the mortgage payment is £600, you pay tax on that full amount of rental income – regardless of whether you’ve made profit or not.
That can turn great investments into bad ones really quickly. When you go through the limited company route, you still have to pay tax, of course, but because the rules are slightly different, you only pay it on the profit from the rent after the mortgage payment. Again, to get the full ins and outs as to what would work for yourself, you do need to speak to an accountant about it.
There are a couple of downsides to buying through a limited company. Because it’s a bit more niche, interest rates and product fees tend to be more expensive. If you compare the interest rates for your personal name to a limited company, there’s a big discrepancy.
This is where you should speak to an accountant – because once the tax has been taken out, it could balance itself out.
Later on down the line, if you’re looking at paying yourself money from the company rather than just building it up and compounding your investments, there are more implications to speak to your accountant about.
It’s nothing too detrimental, but it’s just that those fees and interest rates are more expensive. You need to work out how much tax you would pay. With a lot of our customers, we explain what the costs would be in your personal name and what that looks like under a limited company.
Nine times out of ten, at the moment, it does work out to be beneficial going down the limited company route.
How do I get to Buy to Let mortgage through my limited company?
First, speak to a broker. One of the things you’re going to struggle with is that very few high street banks offer limited company mortgages. There are a couple. So if you just speak to your bank about a limited company Buy to Let mortgage it’s likely to be touch and go.
Quite often, people have offers accepted on a house but haven’t actually set the limited company up – and that massively delays the process.
So you need to set up the limited company you’re buying the properties through. Once you’ve done that, you need to have a conversation with a broker about the options you’ve got available and what your borrowing capacity looks like. You could then get pre-approved for your mortgage, so you could go out and start making offers on your new investments.
How does remortgaging a Buy to Let property through a limited company work?
There are no differences at all. The process is exactly the same as doing it in your own personal name. The fees might be a bit higher, when it comes to the lenders, but getting the remortgage arranged is an identical process. It’s just being keyed in under a limited company rather than in your own personal name.
How can a mortgage broker help here?
A lot of people look online and aim to get a mortgage themselves, by going directly to the lender.
But you’re going to massively struggle doing that with a lot of limited company mortgages. Most are with lenders you can’t access on the high street. Speaking to a broker is really going to open the doorway up to many more options.
On top of that, a good Buy to Let broker should not only get everything sorted out for you, but they are also there as a guide. If they feel like you might be making a bad investment, or there could be issues within the process, a good honest broker will let you know. You’ve got a second set of eyes checking over your deals, rather than just kind of doing it all on your own.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
MOST BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
HM Revenue and Customs practice and the laws relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
Approved by The Openwork Partnership on 15/10/2024.