** Due to the Covid-19 Coronavirus pandemic, the number of limited company buy to let mortgage products has been severely reduced. When circumstances change, the number of BTL mortgages for Ltd companies will undoubtedly increase **
With growing numbers of landlords placing their buy to let operations under the umbrella of a limited company, you may be wondering, ‘How do I get a BTL mortgage as a limited company?’
When it comes to choosing the best buy to let limited company mortgage deal, this is not a question of simply choosing the deal with the lowest monthly repayments and the cheapest interest rate.
As with residential mortgages, there is a wide range of BTL mortgages available so it’s probably best to speak with an experienced buy to let mortgage broker who can offer independent financial advice for meeting your current and future needs.
However, there may be some people wanting to invest in a buy to let property and wondering why limited companies have taken off in recent years for landlords.
The answer is quite simple: the government has tightened the rules on claiming various reliefs for wear and tear as well as mortgage interest and a limited company offers the best way currently of boosting profitability.
Also, a limited company may not suit your investment ambitions and you will need to think carefully about whether creating a Ltd company – you will need to create a Special Purpose Vehicle or SPV – is really for you with the additional administration required.
The other advantage for having limited company mortgages is that you could have several shareholders on the property’s title deeds. This then makes it simpler to administer the ownership proportions as well as sharing up profits.
What is a limited company buy to let mortgage?
This then brings us onto the question of: What is a limited company buy to let mortgage?
Firstly, there are specific BTL mortgage deals geared towards limited companies and in 2019, the number of landlords, especially those with a portfolio of more than five properties, using a limited company to invest in property rocketed.
This continued into 2020 and the industry figures highlight that two in three BTL mortgages are to limited company applicants.
It’s important to appreciate that when you buy property using a limited company, it is the company that will own the property and not you as an individual.
So, you will need to take these steps:
- Create a limited company
It’s probably wise to speak with an accountant, decide on a company name and then create the business via Companies House. There are specific rules on SPVs – more below. Having an accountant on board will mean that you’ll meet your tax and administration obligations to ensure that you run a profitable enterprise.
- Invest in the company
Once your limited company has been created, you’ll need to pay money into it, so you have cash for deposits to put on properties that you want to buy, with the remainder of the purchase price being covered by a special buy to let limited company mortgage.
- Tax liabilities when using a limited company to buy a property
It’s important to appreciate, as mentioned previously, that the tax rules that cover buying a property through a limited company are different to those when you buy a property in your own name. For those who want to avoid paying the additional stamp duty levy, then you need to appreciate that limited company property purchases are still liable for stamp duty.
It’s probably a wise idea to spell out the differences when it comes to buying a BTL property in your name and using a limited company. When you purchase in your name, you’ll need to pay:
- Stamp duty land tax;
- Tax on rental income;
- Capital gains tax will be levied on the profit that is made when you sell a property.
As a limited company, you will not be taxed as an individual but you will need to pay corporation tax instead. Depending on your circumstances, this can be a cheaper way to pay less tax than boost profits.
Choosing the commercial BTL mortgage for you
As with residential mortgages, you will need to consider carefully what kind of buy to let mortgage you want when using a limited company. There are various types to consider:
- Long or short-term mortgage: a long-term mortgage will mean your monthly payments will be lower but the short term BTL mortgage will save money when you pay the balance off quicker so you pay less in interest charges.
- Interest-only or repayment BTL mortgages: the cheapest route is to use an interest-only deal which will cost less every month but you’ll need to generate the cash to pay off the mortgage or sell a property when the BTL mortgage ends.
- Use a variable, tracker or fixed BTL mortgage rate deal: you should consider the type of interest rate that you are wanting to pay with a BTL mortgage and whether you are protected from future interest rate rises.
It’s always a good idea to consider options between investing as a landlord or using a limited company for accessing special buy to let mortgages.
One of the issues that you’ll need to take on board, though it will become perfectly clear with a comparison exercise between ltd company and non-ltd company arrangements, is that the rates for BTL limited company mortgages tend to be higher than those for an individual landlord.
In addition to higher rates of interest, buy to let mortgages for limited companies tend to have higher arrangement fees and are usually charged as a percentage of the loan amount, rather than a fixed fee.
Accessing a cheap buy to let mortgage using a limited company
There may be other questions related to accessing a cheap buy to let mortgage using a limited company and these may include:
Can I get a mortgage through my limited company?
This answer is aimed at those wanting to get a mortgage using a limited company but have not focused on the property sector.
While there are some lenders willing to work with companies who are not trading in property, you’ll find that mortgage lenders view more positively those firms that are involved wholly in property.
That’s because they have created an SPV and some lenders will only lend to them SPV.
Can a limited company buy a holiday home?
If you have a trading limited company, then it is possible to buy a holiday home using a limited company. If you can find a lender willing to take you on, then you can buy a single unit holiday let or indeed a holiday let business which has also been trading as a limited company.
We have mentioned already that those landlords interested in purchasing property using a limited company should use experienced accountants.
Limited company buy to let mortgage criteria
If you have looked into investing in property using a limited company, then you may be interested in what the potential buy to let mortgage lending criteria will be.
Most BTL mortgages will be available only to special purpose vehicles for the buying, selling and then the letting of residential property.
Partnerships and LLPs will not be accepted and the company must be registered in England, Wales or Scotland as an SPV from day one – and not be a limited company that is being converted into an SPV at some point after registration.
Along with speaking with your accountant, it’s also a very good idea to speak with a mortgage broker who deals with BTL mortgages for limited companies.