Limited Company Buy to Let Mortgage
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Limited Company Buy to Let Mortgage
Carolyn Dunion explains the process of purchasing a Buy to Let through a limited company.
Can I get a Buy to Let mortgage via a limited company? Is it difficult to get a Buy to Let mortgage through a limited company?
Yes, this is possible, and it is certainly more work to get it through a limited company than personally. That’s because a limited company is a separate legal entity. It’s almost like having another person in the mix. There’s more legal paperwork, and lenders tend to do more due diligence on a limited company mortgage. But it’s not difficult or impossible. It’s just more involved.Can a new limited company get a Buy to Let mortgage?
Yes, that’s entirely possible. The lender will assess the whole situation – and look at you as an individual and at the limited company. There’s no reason why a new limited company couldn’t get a Buy to Let mortgage.How do limited company Buy to Let mortgages work? What are the eligibility criteria?
Much of the eligibility criteria is the same for a Buy to Let mortgage as an individual. The lenders are concerned with how much rental income you’re going to get for the property. They’ll want a certain level of deposit and they’ll want to satisfy themselves that you’re competent both as a landlord and to run this business arrangement. But it’s not particularly more difficult from an eligibility perspective than for an individual.How much deposit do I need for a Buy to Let through a limited company?
Typically, you need a 25% deposit. In some scenarios they would accept a 20% deposit, but equally there could be some scenarios where they want more. It comes down predominantly to the amount of rental income that you’re likely to get from the property.Is it worth setting up a limited company for Buy to Let?
It’s a fascinating question and I get asked this all the time. Essentially, if it’s the right thing for you from a tax perspective, and your accountant is recommending it, then it’s a good idea. It’s less appealing from a mortgage perspective, because it’s easier and cheaper to get a Buy to Let mortgage as an individual. But in general, if you’ve got multiple properties, it can cost you less in tax. It rarely stacks up if you’ve just got one or two Buy to Lets.Chat With An Expert
The initial conversation is completely free and with no obligation. We usually take some information from clients so that we can offer meaningful advice.
Do limited companies pay stamp duty on Buy to Let and what are the costs involved?
Yes, they do pay stamp duty – or land and buildings transaction tax (LBTT), as it’s called now. That’s the case even if you own the property personally and you’re effectively selling it to the limited company. LBTT is very much a factor in deciding if this is the right vehicle for you. When buying any property, you have solicitors’ costs, and those costs will be higher if you’re buying through a limited company, because there’s an extra layer of legality. From a mortgage perspective, you can expect higher arrangement fees with lenders, valuation fees, and perhaps legal fees to the lender depending on the product you’re going for. You’ve really got all the same costs, but they can just be a little more expensive.What are the benefits and drawbacks or pros and cons of owning property through a Buy to Let limited company?
The tax regime for limited companies is perceived to be better, as profit that comes into the limited company is subject to corporation tax – whereas if you own a Buy to Let directly, all that profit will go through as your own income. You also have a dividends allowance if you want to to pull money from the company, which also makes the tax regime more preferable. The downsides are the costs of setting it up are higher, as we mentioned. Also, you don’t own it personally, the limited company does, so it’s less flexible when you want to sell. An important thing is that limited companies are generally set up to protect the directors from the business failing in some way. It’s designed so that directors can take risks within their business, without any threat to their own home. With a limited company mortgage, however, the lender will require you to sign a personal guarantee. That means if the limited company fails to pay the mortgage, they can pursue you as an individual. You don’t have the same level of protection that you normally expect from a limited company.How do I get a Buy to Let mortgage through my limited company? What’s the process?
There are two things to do at the start: speak to your accountant and to McKendry Dunion Financial. It’s much better if we form a wonderful trinity between the client, accountant and ourselves, because that makes sure we are doing the right thing for the client, and that the tax implications have been considered fully by the accountant. If it’s all deemed to be the right way forward, the accountant would set up the limited company and we would apply for that limited company mortgage in the same way as any other. We would ask for your documents, give advice and submit the application. It does tend to take a bit longer with a limited company application than in personal names.How does remortgaging a Buy to Let property work through a limited company? What’s the process here?
With any remortgage, be it limited company or otherwise, we would see what products are available with the existing lender and then with the rest of the market. The costs of moving to a different lender can make that transition more expensive. Usually it would need to be a very good scenario to be worth remortgaging with different lenders. Again, within a limited company it can just be slightly less flexible than as an individual.How can a mortgage broker help? Anything else to add, or final thoughts?
For this type of transaction, you really do need a mortgage advisor because the process is more complicated. The details that lenders require and how they want it presented can be much easier to navigate with a broker doing it for you. Also, because these mortgages are more expensive, you’ll want to make sure you’re getting the right deal. Some lenders who operate in this space only offer mortgages through intermediaries like ourselves – and that can make a big difference in what you end up paying.Key Takeaways:
- Obtaining a Buy to Let mortgage through a limited company is possible but is more involved than applying personally, requiring more legal paperwork and due diligence from lenders.
- The decision to use a limited company is usually driven by potential tax benefits, which an accountant should confirm, and it is generally only cost-effective for individuals with multiple properties.
- The required deposit is typically 25%, though a 20% deposit may be accepted in certain scenarios.
- The costs associated with a limited company Buy to Let are higher, including solicitor fees, land and buildings transaction tax (LBTT), and increased arrangement fees from the lender.
- Limited company mortgages usually require the director to sign a personal guarantee, meaning the individual is still pursued by the lender if the company fails to make mortgage repayments, reducing the usual liability protection of a limited company.