Limited Company Mortgages* have become ever more popular following the chancellor's tax changes last year, here's our lowdown on the burning questions our clients have when looking to structure purchases this way.
No, not at all. Technically the business could have been set up yesterday, so long as it's set up prior to any borrowing application, that's enough.
In short, no. It's no different to a personal buy to let mortgage in general underwriting terms. The strength of the application comes from the directors and majority shareholders themselves, rather than the Ltd company itself. Therefore trading accounts are not needed for new companies or SPVs. Almost all limited company mortgages require personal guarantee's, this enables the lender to ignore the company itself and focus their borrowing decision from a personal perspective.
An SPV is simply a type of company subsidiary that is well suited to holding property and is universally accepted by buy to let lenders in this market.
Its a very simple exercise, you just need to allocate an SIC code as you are required to do with any limited company, the most commonly used are;
68209 – Other letting and operating of own or leased real estate
68320 – Management of real estate on a fee or contract basis
Although there may be something that suits your business more specifically. You'll find a comprehensive list here - SIC Codes
No, limited company buy to let deals are available to a maximum of 85% loan to value. Although similarly to personal buy to let deals, there is more choice at 75% loan to value and below.
In general, mortgages are more expensive than personal equivalents - yes. Currently there is much less choice on the Ltd company side. So you can expect to pay 1 - 1.5% more on the rate. Of course you have to also weigh up the possible tax advantages and look at the overall picture as it isn't as simple as just considering mortgage pricing. We are seeing lenders enter the market and we have also seen the gap closed in terms of rate differential, so deals are already getting cheaper. Watch this space for the bigger players to enter the arena - how long that will take or whether they are certain to move over, time will tell.
Yes, but you are limiting your options by doing so. As we've established the market for limited company buy to let is small compared to personal offerings, and you'd be further limiting options by going down the trading business mortgage route. You'll be offered more choice by using the aforementioned SPV, and chatting to your accountant about tax efficient ways to move the deposit and ringfence your property away from your day to day business.
Many lenders are accepting of your creation of a directors loan, so if you invest your own personal cash into the company, you can draw that capital from the company at a time when it can afford to pay you back, tax free, since it was paid in by yourself in the first instance. Other ways to move cash to the newly created company include a transfer from your trading business. Again, talk to your accountant about the best way to make this happen, and we can ensure that the lender is accepting of the intended route.
Yes, however, it would need to be done with care, and careful consideration. Despite the fact you may own 100% of the new business, your company would be an entirely different entity to yourself, so the word 'transfer' isn't accurate. Your company would be undertaking a new purchase, and therefore this could trigger capital gains tax or CGT personally, and of course since it is a new acquisition, stamp duty would need to be paid by the purchasing business. So although it's a consideration, often it's an expensive move and other options take precedence.
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