Your questions answered before you set up a limited company for property investment
You may be considering how to structure as a property investor. For example, you could increase your property investment profits as a limited company rather than by investing in your personal name. Predominantly, this is because of how tax relief on mortgage interest is changing. It pays, therefore, to understand how buy-to-let mortgages work for limited companies.
How easy is it to get a limited company BTL mortgage?
Though not as easy as getting a buy-to-let mortgage when investing as a personal name, BTL mortgages for limited companies are becoming more commonplace. There are now more products and more providers in the market than ever before. However, you’re very unlikely to find a good mortgage offer with a high street lender, so you should always use a mortgage broker with experience in the buy-to-let market.
Where can the deposit come from?
The deposit money can come from a variety of sources. Many investors who set up a limited company to invest in property will ‘lend’ the deposit money to the limited company as a director’s loan. Over time, this money can then be repaid to the director (you) tax-free.
Is it more difficult to get a BTL mortgage as a new limited company?
The quick answer is yes, though the lender will go through a similar process to that when assessing you as a personal name investor. You will need to show that the rental income will cover the mortgage payments according to the lender’s interest coverage ratio (ICR) requirement. You may also need to show that the company is creditworthy – the lender may wish to verify your income, for example.
After that first property has been bought, it gets easier for limited companies to reinvest profits and get a mortgage to expand their portfolios. Just as when you invest as a personal name, the lender will consider a company’s record as a property investor. The more experience and success you have, the better your chances of getting a mortgage with favourable terms.
Are there any special criteria a lender will want to know?
For the most part, the criteria that a lender uses is very similar, or the same, as when assessing a personal name applicant. However, they may also ask about:
- The total number of properties you own in your own name as well as in the company’s name
- The number of directors, and their details
- The number of shareholders of the company. Some lenders may not lend to companies whose shareholders include your children
Can my limited company do other things?
If you set up a company to do more than only invest in property, you will probably find it more difficult to get a BTL mortgage. This is because the loan may be viewed as commercial financing and require commercial lending (a different specialisation with different rules). This isn’t to say there aren’t lenders that will consider extending finance to companies that trade in other areas – there are, but they are few and far between, meaning it’s a less competitive market (and that’s never good news for the mortgage applicant).
Are BTL mortgages for limited companies more expensive?
They used to be, but with the increase in competition in the market during the last couple of years, the interest rates charged are very similar (and often the same) as those charged on BTL mortgages to individual investors.
What about charges?
There is a little more paperwork for lenders to process, and the process itself is a little more complex. For example, the lender may have to verify and credit check multiple directors. Therefore, the legal and administrative charge may be a little higher than for other mortgage types.
Does a limited company BTL mortgage affect my other credit?
It may do – just as it would when you invest as a personal name – though many lenders may disregard the borrowings in the limited company name when assessing personal credit applications. This is because of the limited liability nature of the limited company. Unless your assets have been used as a personal guarantee, you will not be forced to sell them if the company is wound up.
How do you get a good BTL mortgage for a limited company?
While it’s very easy to set up a limited company to invest in property, it’s not quite so straightforward to get a BTL mortgage as a limited company. While it is expanding, the pool of lenders in the market is still considered niche. This is why we recommend you always use a mortgage broker with specific experience of sourcing mortgages for limited companies.
If you are considering setting up a limited company to invest in property, contact Gladfish first on +44 207 923 6100. We’ll help you to decide on your property investment strategy, and discuss the pros and cons of investing in a limited company in your personal situation.
Live with passion and fun,
Brett Alegre-Wood
