Purchasing a property through a limited company can be a wise decision, whether you are investing in commercial premises, or expanding your buy-to-let portfolio.
Let's take a look at how a company mortgage works, and whether it is beneficial to transfer property to a company, rather than to apply for a mortgage as a sole trader or other business structure.
Special Purpose Vehicles
As an alternative to a 'standard' limited company, you may choose to set up your buy to let company as a special purpose vehicle, or SPV.
An SPV is a type of limited company usually set up expressly for buying a property through a company. SPVs exist solely to hold ownership of your property assets, and aside from the associated rental income and mortgage expenditure, do not trade in any other way.
Setting up an SPV with Companies House is a very similar process to set up a regular limited company. The cost is £12, and the only difference is that you need to choose the correct classification code, or SIC, to explain what sort of business your new SPV is.
Buy to let through a limited company
Purchasing a property through a buy to let mortgage is available through several lenders, however, we always advise seeking professional advice before choosing which Ltd company BTL mortgage to take out, as the terms and rates can vary significantly.
Revolution Brokers work with an established network of lenders specialising in company buy to let mortgages, who have an in-depth understanding of the market and can offer tailored rates to suit your investments.
One of the main benefits of purchasing a buy to let property through a limited company is the potential for tax efficiencies. With 2020 budget changes to tax relief for landlords and modifications to the CGT regulations, limited companies have access to tax relief that can make this a more cost-effective way of investing.
Most SPV buy to let companies choose SIC code 68209 - this represents 'other letting and operating of own or leased real estate'.
While you can change your SIC code later on, it is preferable to make sure this is accurate when you incorporate your buy to let company to avoid any queries.
Buying property through a limited company - SPV
Many businesses looking for a company buy to let mortgage will choose to incorporate as an SPV to take advantage of the reductions in tax liabilities. Rather than paying income tax, as you would as a sole trader, you pay corporation tax.
Corporation tax stands at 17% for the 2020-2021-tax year, reduced from 19%. Lenders of limited company buy to let mortgages also have fewer restrictions around affordability assessments when lending to companies. This is because they are less risky in terms of being able to cope with changes in interest rates, and therefore the stress testing process is less rigorous.
Most limited companies buy to let mortgages are assessed on a minimum rental income of 145% of the mortgage repayments. SPV Ltd company BTL mortgages will usually need to demonstrate a lower rate of 125% revenue over annual repayments.
Finding the right company mortgage
When you are looking to invest in property or transfer property to a company, you must seek expert advice and recommendations.
There are many buy to let limited company mortgages on the market, all with different qualification criteria, terms, rates and flexibilities. Give Revolution Brokers a call on 0330 304 3040, and we will help identify the best mortgage products for your requirements, and negotiate the terms on your behalf!
Many mainstream lenders or inexperienced brokers tend to reject applications from buy to let landlords looking to consolidate their assets in a limited company.
This happens because company buy to let mortgages are a niche product, and a specialist lender is in a better position to understand the circumstances and offer competitive lending.
Revolution Brokers work with buy to let companies large and small, new and established, and match every client with the ideal lender who offers the most competitive terms for your mortgage plans.
The criteria for mortgaging buy to let property through a limited company
Different lenders have different criteria, but most will consider the following types of company mortgage applications. However, there are multiple factors when deciding if they can finance a limited company buy to let mortgage:
- Whether the company is a new or established SPV limited business.
- How the anticipated rental income compares to the mortgage repayments - this needs to be at least 125%.
- Whether the applicant is an existing non-SPV limited company.
- If the company or owners have any adverse credit history.
- Whether the company mortgage is through a new Ltd company set up to manage the investment.
- Whether limited company owners have personal guarantees in place.
- How high the LTV ratio is - usually capped at 85%.
If you are unsure which of these criteria relate to your company mortgage, or which limited company status is more beneficial, give us a call. The Revolution Brokers team will be happy to help!
Transfer of property to a company
Usually, an SPV should be created before or at the time of the company mortgage application - it can be difficult to transfer ownership of your property to a buy to let limited company retrospectively.
This is difficult because the property must be purchased at a fair market price, which may be different from the original purchase price.
Transferring ownership of the property would also incur stamp duty at the standard rates and may incur a capital gains tax liability.
The only common scenario when buy to let properties can be transferred to an SPV is where a landlord is looking to expand their property portfolio and is consolidating existing assets under one company ownership.
Revolution Brokers strongly recommend seeking professional advice if you wish to transfer property to a company, to ensure that you understand all of the tax implications.
Purchasing a property through existing limited companies
It can be complicated securing a mortgage through an existing limited company - whether you wish to remortgage or invest in a new property.
Revolution Brokers specialise in brokering these exclusive deals and are on hand to help you obtain independent advice and expert recommendations to achieve the best outcome for your business.
Many mainstream lenders will only consider applications to mortgage through a buy to let limited company and are unable to offer terms to limited companies carrying on other areas of trade.
In this case, commercial mortgages are usually the most suitable product but speak to Revolution Brokers about your business and your planned investment, and we will guide you through the pros and cons of each option.
Purchasing buy to let property through an SPV limited company
If you have an existing SPV limited company, securing a limited company buy to let mortgage is usually more straightforward. While many landlords choose to classify their buy to let company as category 68209, there are other options:
- 68100 - a company that buys and sells real estate.
- 68201 - a company that rents and manages real estate through the Housing Association.
- 68209 - a company that lets and operates either their own or leased real estate.
- 68320 - a company that manages real estate property on a fee-based or a contractual basis.
Applying for a buy to let limited company mortgage through a new SPV can happen straight away. The responsibility for the mortgage sits with the Director since the buy to let company won't yet have a credit or trading history.
As SPVs become more popular, more lenders are offering company mortgage products tailored to this sort of limited entity. An expanding range of products is making the market more competitive, and we can help our clients access the best deals available.
Even if one lender has rejected your application, this does not mean to say that you won't be successful elsewhere, especially if you use an expert broker to manage your application through a specialist mortgage provider.
The mortgage process for buying a property through a limited company UK
The application process itself is relatively similar to a residential mortgage application, although each lender will have specific criteria about what they can and cannot lend against.
You can expect to provide information about:
- Your credit history
- Your buy to let company
- Your projected and past revenue
- Your expenses and costs
- Your property portfolio
- Your experience as a buy to let landlord
Given the additional work required in assessing a buy to let company mortgage application, the fees tend to be higher than for standard mortgages.
However, you can balance these higher costs with the tax efficiencies available by investing in property through a limited company.
Additional company buy to let mortgage costs
It is always wise to work with a professional broker to ensure you are in full control of the fees and all the costs involved. Some lenders will require a personal guarantee if you are buying a property through a limited company that is recently incorporated.
A guarantee provides security for the lender, although you should be aware of the ramifications if you are unable to keep up with your repayments. Your solicitor can advise on whether this sort of guarantee is suitable for you.
Deposits on limited company buy to let mortgages
Most lenders will consider lending up to an 85% mortgage cap for Ltd company BTL mortgages. This means that you will need to have at least a 15% deposit available.
However, the LTV rates changes between lenders, and you may need to have a higher value deposit available if, for example:
- You are a new BTL landlord.
- You have a bad credit history.
While creating a transfer of property to a company can be complicated, an alternative is to use your existing trading businesses to finance the deposit requirements. This type of inter-company loan avoids the strain on your personal cash flow of having to personally fund a high deposit.
If you are looking to mortgage through a buy to let limited company and need any advice about structuring your mortgage, finding the right lender, or achieving the most competitive rates, give Revolution Brokers a call on 0330 304 3040.
We are specialist brokers in the commercial mortgage sector and will be able to help and advise on the ideal company mortgage for you.
Frequently Asked Questions
Which lenders specialise in mortgages for SPV buy to let companies?
One of the biggest challenges our clients come to us with is that, with so many lenders to choose from, they find it impossible to know which deals are the most cost-effective and which company mortgage products are best for them.
Most company buy to let mortgages are offered up to an 85% LTV ratio, and different lenders may vary considerably in the terms, rates, and LTV ratios they can offer.
This means that usually, you will need at least a 15% deposit to secure a company mortgage, although in most scenarios this is likely to be closer to 25%.
If you would like to invest in buying a property through a limited company and are looking for offers with lower deposit requirements, give us a call on 0330 304 3040, and we will walk through all the options with you.
Can I set up a new SPV for buying a property through a limited company?
You certainly can! Many landlords who choose to invest through a buy to let company set up an SPV specifically for this purpose. Usually, the SPV is set up at the same time as the company mortgage application, so that the incorporation information is available at the time.
With a newly registered company, you should bear in mind that the business won't yet have an established trading history, so the application will usually be considered solely on the merits of the individual owner or owners.
You can expect a mortgage lender to undertake credit checks against the individual owners, and ask you questions about your personal income to ensure that the affordability criteria are met.
What are the pros and cons of buying a property through a company?
There are different advantages and disadvantages to structuring your purchase through a buy to let limited company.
- Can be more tax-efficient than investing as a sole trader.
- Your liability is limited since an incorporated company is a separate legal entity - dependent on personal guarantees or security offered.
- Companies may have multiple shareholders who appear on the title deeds - this can share the ownership and make it simpler to apportion profits.
- Specialist lenders are more likely to be able to extend borrowing to a business than to an individual with several pre-existing properties.
- Fewer lenders can offer a mortgage to a buy to let limited company.
- The payable fees tend to be higher for a company buy to let mortgage.
- The application process and checks carried out may take longer than for an individual application.
The key to ensuring that you are getting the best mortgage deal is to speak to an independent advisor. Revolution Brokers offer impartial advice and can recommend products from across the market sector to best suit your borrowing needs.
Can I get a mortgage for a new buy to let company?
You can secure a mortgage for a new business, but it may be slightly trickier since the company will not have any track record or trading history for the lender to rely on.
This usually means that the checks need to be carried out against the owners responsible for the business. However, mainstream lenders may be unable to lend against this type of application at all.
You may find that the deposit requirements are higher, to mitigate the risk posed to the lender in extending a facility to a new company without any credit history to rely on. Mortgage providers may also require personal guarantees to shore up the credit they are offering.
If you have a new limited company and require a company buy to let mortgage, give our friendly team a call on 0330 304 3040, and we will talk you through the most competitive options.
What are the interest rates for Ltd company BTL mortgages?
You will find a range of terms and rates available in the company buy to let mortgage market and different criteria with each lender.
Revolution Brokers scour the market to find the best deals and negotiate on your behalf to ensure that your mortgage terms are ideally suited to your investment plans.
How does stamp duty affect a company buy to let mortgage?
You can expect to pay stamp duty on a residential property purchase, whether you are buying as an individual or through a company mortgage.
There is also a 3% surcharge to be aware of, which is subject to stamp duty and depends on the value of the property you are buying.
Current stamp duty rates are as below:
- Property value up to £125k - 0% stamp duty
- Property value £125k>£250k - 2% stamp duty
- Property value £250k>£925k - 5% stamp duty
- Property value £925k>£1.5m - 10% stamp duty
- Property value £1.5m and above - 12% stamp duty
Can I transfer property to a company?
The tax efficiencies available mean that many landlords may consider transferring property to a company or SPV limited company.
Changes to tax regulations have reduced the tax relief available for landlords, although these changes do not affect company properties. Buy to let limited companies do not have the same issues since the costs of owning a property through a limited company are treated as an expense written off for taxation purposes.
There is a downside in that if you already own investment properties and wish to transfer them to a company, you need to conduct a sale and repurchase transaction.
This process can be somewhat complicated with factors to consider including:
- Capital gains tax
- Stamp duty & surcharges
- Legal costs
- Valuation charges
- Mortgage fees
Some landlords may be exempt from some of these factors, for example, if your primary role is as a full-time portfolio landlord. It is always advisable to speak to a tax advisor to ensure that you are declaring your costs and conducting your property transfer transactions correctly.
Can I purchase buy to let through a limited company if I have bad credit?
It might be more difficult - but yes, you can! A lot depends on how long your company has been established, how many other owners are involved and what the adverse credit circumstances are.
If any of the following apply, give Revolution Brokers a call - we work with specialist brokers who can extend mortgage offers to applicants with bad credit or who have had liquidity issues in the past.
- Low credit score
- Adverse credit reports
- Mortgage arrear history
- Past defaults on payment
- CCJs (County Court Judgements)
- DMPs (Debt Management Plans)