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Discover how limited company but to let mortgages work, the eligibility requirements, and the potential benefits of becoming a Buy to Let investor.
What is a limited company buy to let Mortgage?
A limited company buy-to-let mortgage is a specialized loan designed for property investors who choose to purchase and manage their buy to-let properties under a limited company structure. Unlike traditional buy-to-let mortgages, where the individual is the borrower, the limited company becomes the legal owner of the property and the mortgage is in the company’s name.
What are the typical interest rates for Limited Company buy-to-let mortgages?
The interest rate on buy-to-let mortgages for Limited companies depends on the lender you choose. With the increasing popularity of this borrowing method, more lenders have entered the market, leading to competitive pricing. Some specialist lenders even offer the same rates for individuals, SPVs, and trading limited companies. However, in general, limited company rates tend to be slightly higher than those for individual borrowers.
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How to get a limited company buy to let mortgage?
Getting a limited company buy-to-let mortgage involves similar steps to securing a standard buy-to-let mortgage, but with a few key differences:
The steps involved in apply for a buy to let mortgage includes:
Company Formation:
- If you don’t have an existing limited company, you’ll need to create one, often a Special Purpose Vehicle (SPV), specifically for your property investment activities. See below FAQ for further guidance.
Financial Preparation:
- If it’s an existing company, gather your company’s financial documents, including accounts, tax returns. Additionally, prepare personal financial documents for directors and shareholders, as lenders often require personal guarantees.
Mortgage Research:
- Research lenders specializing in limited company buy-to-let mortgages. Not all lenders offer this product, so it’s crucial to find those that do. Compare interest rates, fees, and terms to find the best deal for your situation.
Engage a Mortgage Broker (Optional):
- Consider working with a mortgage broker who has expertise in limited company buy-to-let mortgages. They can help you navigate the complexities and find the most suitable lender for your needs.
Mortgage Application:
- Once you’ve chosen a lender, complete their application form and provide all the required documentation. Be prepared for a more in-depth assessment of both your company’s and your personal finances.
Underwriting and Approval:
- The lender will assess your application, considering factors like the property value, rental income potential, and your financial stability. If approved, you’ll receive a formal mortgage offer.
Completion:
- Work with a solicitor or conveyancer to finalize the purchase, ensuring all legal requirements are met.
Why Choose Mortgage.One for Your Limited Company Buy-to-Let Investment Journey?
- Transparent Fee Structure: No Broker fees, we are paid by lenders. Get initial cost estimates with our calculator.
- Thousands of Options at Your Fingertips: Compare numerous rates and deals to find the best fit for you.
- Specialist Buy-to-Let Expertise: We understand the complexities of buy-to- let lending, including limited company and unique situations.
- Informed Decision-Making: Make confident choices using our buy-to-let calculators. Analyze various aspects of your mortgage.
- Proven Track Record: We’ve arranged over £100 million in buy-to-let mortgages. See our success stories.
- Strong Lender Relationships: Our network gives you access to top buy-to- let products and favorable terms.
- Save Time & Secure Deals Faster: We streamline the mortgage process, so you can focus on your investments.
- Informed Decision-Making: Make confident choices using our buy-to-let calculators. Analyze various aspects of your mortgage.
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Tax Efficiency:
Limited companies are subject to Corporation Tax rather than Income Tax, so the changes in mortgage interest tax relief for individual buy-to-let landlords do not directly affect them. However, when company owners take profits out of the company, Income Tax will apply (either through salary or dividends). For many landlords, using a limited company for buy-to-let mortgages can be more tax-efficient than owning properties personally. Still, it’s crucial to seek advice from a tax professional before making any investment decisions.
Increased Borrowing Potential:
Due to regulatory guidelines requiring stricter stress tests on individual landlords, lenders often offer more generous income cover ratios (ICR) for limited company buy-to-let mortgages. This translates to potentially higher loan-to-value (LTV) ratios, allowing you to borrow more against the property’s value compared to borrowing in your own name. For instance, if two properties generate the same rental income, the one owned by a limited company could qualify for a larger loan amount, assuming all other criteria are met. Here’s a breakdown of the typical stress test rates:
- Individual landlords: Stress tested at 145% rental income coverage ratio
- Limited companies: Stress tested at 125% rental income coverage ratio
Flexibility:
Limited companies can have multiple owners, making it easier to share investment and ownership responsibilities.
Start with Research and Self-Assessment:
- Calculate your borrowing capacity: Use our “How much can I borrow?” calculator to estimate how much you could potentially borrow based on rental income from the buy to let property.
- Access 100+ lenders: As a whole-of-market broker, we have access to a vast network of lenders, including those specializing in limited company buy-to-let mortgages. This ensures you’re not limited to a few options and can find the most competitive deals.
- Utilize our online comparison tool: Our comparison tool allows you to easily compare different mortgage deals based on your specific requirements, helping you quickly identify the most suitable options.
- Benefit from our experienced team: Our team has extensive experience in the buy-to-let market, including limited company structures. We can provide expert advice, guide you through the application process, and negotiate with lenders on your behalf to secure the best possible deal.
One-Time Fees:
- Arrangement Fees: Charged by the lender for setting up the mortgage, typically a percentage of the loan amount or a fixed fee
- Valuation Fees: Charged for assessing the property’s value, essential for the lender to determine the loan amount.
- Legal Fees: Cover the cost of legal services for the mortgage and property purchase.
- Broker Fees (if applicable): If you use a mortgage broker, they’ll charge a fee for their services. At Mortgage.One, we don’t charge our client broker fee as we are paid by the lender.
Ongoing Fees:
- Mortgage Interest: The regular payments to the lender, calculated based on the interest rate and loan amount.
- Company Costs: Setting up and maintaining a limited company incurs ongoing costs like accounting fees, annual company accounts and returns.
- Property Costs: These include insurance, maintenance, repairs, and any service charges or ground rent.
Other Costs (Potentially):
- Stamp Duty Land Tax (SDLT): Payable on the purchase price of the property. A 3% surcharge applies to additional residential properties, regardless of whether the purchase is made by an individual or a limited company. Use our buy-to-let stamp duty calculator for accurate calculations.
- Early Repayment Charges (ERCs): Incurred if you repay the mortgage early, typically during a fixed-rate period.
Tip: Compare fees and charges from different lenders before making a decision. A mortgage broker can help you understand the costs involved and find the most cost-effective option for your needs.
Company Financials Scrutiny:
Lenders thoroughly assess the limited company’s financial health, including its accounts, cash flow, and business plan (if applicable). This is crucial to gauge the company’s ability to repay the mortgage and manage the property investment.
Personal Guarantees:
Most lenders require personal guarantees from the company’s directors and/or shareholders, making them personally liable if the company defaults. This necessitates a thorough assessment of their personal finances, including income, assets, and liabilities.
Stress Testing:
Lenders apply stress tests to assess whether the rental income can cover mortgage payments even with interest rate fluctuations or vacancy periods. The stress test for limited companies is typically 125% (rental income should cover 125% of the mortgage interest), lower than the 145% applied to individual borrowers.
Experience and Expertise:
Lenders may assess the directors’ experience and expertise in property management, particularly for multi-let properties like HMOs, student lets, or short-term lets like holiday lets and Airbnb, which demand more hands-on involvement.
Portfolio Landlords:
For companies owning four or more buy-to-let properties, lenders evaluate overall portfolio performance, including rental income, vacancy rates, and expenses to assess financial stability and risk.
Legal Structure:
Lenders review the company’s legal structure and documentation for compliance. Some lenders might not consider SPVs owned by a holding company instead of individual shareholders.
Factors Affecting the Timeline:
- Complexity of the application: Complex financial situations, multiple properties, or trading limited companies with existing businesses may take longer.
- Lender’s workload: Each lender has different processing times, and delays can occur during peak periods.
- Applicant’s responsiveness: Quickly providing all required documentation speeds up the process considerably.
- Property valuation and legal work: These external factors can also impact the overall timeline.
General Timeline (Estimate):
- Initial Inquiry and Agreement in Principle (AIP): A few hours to a few days.
- Formal Application and Document Submission: 1-2 weeks.
- Underwriting and Valuation and Document Submission: 2-4 weeks.
- Mortgage Offer: A few days.
- Legal Work and Completion: 4-8 weeks.
- Prepare all documents in advance.
- Choose a lender known for quick turnaround times.
- Work with a mortgage broker to streamline the process.
Remember, these are just estimates. Consult a mortgage broker or lender for a more accurate timeline based on your specific situation.
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Buying a Second Home or Investment Property?
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