Entering the property market and looking to borrow via a Ltd Co?
Everyone has to start somewhere, but just how easy is it to to get an Ltd Co to buy to let mortgage if you’re new to the sector?
Lenders are pretty open when it comes to lending to first-time landlords. As I write there are currently 1,410 mortgage products available to first-time landlords out of a total of 1,742. Throw limited companies into the mix and it reduces the number of products available to 391 – still a fairly healthy figure none-the-less.
Most lenders will require you to earn in excess of £35,000 per annum to qualify for a first-time landlord buy to let mortgage however there are several specialist lenders that don’t.
The rates you can expect to receive can be just as competitive as the rates offered to experienced landlords, but this will depend very much on your particular circumstances in terms of income and whether you own your own home.
Okay, so it’s clear there is plenty of choice out there, but is the limited company route the best route for you? Before you go any further I recommend that you seek professional tax advice from a qualified accountant. I can’t stress how important this is. They will be able to tell you if you are better off borrowing via a limited company or personally.
If your accountant agrees that borrowing via a limited company is the best option for you, what next? As you can imagine, we frequently get asked how to set up a limited company and I’m glad to say it’s very simple.
You can either ask your accountant or go online. An SPV limited company costs about £15. If you buy one online, it will take just a few minutes and as long as you intend to use the company just for property letting going forward – there is nothing more complicated to it!
You will be asked to select a SIC code for your new company. This code is used to classify business establishments by the type of economic activity they are engaged in.
To choose a SIC code for your company, use the official Condensed SIC list on Gov.uk. Most buy to let lenders are comfortable with the following SIC codes:
68100 – Buying and selling of own real estate
68209 – Other letting and operating of own or leased real estate
Once your limited company is set up you can apply for finance. Don’t worry that your newly created SPV doesn’t have any accounts. The mortgage will be underwritten based on your personal circumstances. It is worth noting that you will be asked to provide a personal guarantee.
In simple terms, a personal guarantee means that you are ultimately responsible for the mortgage in the event that the company is unable to settle its mortgage liabilities.
SPV OR A TRADING LIMITED COMPANY?
In buy-to-let terms, special purpose vehicles (SPVs) are, as the name suggests, limited companies which exist only to hold the property and as a structure to channel the income and expenditure of your buy-to-let business. Like any other limited company, you can draw income and dividends from the company structure, while profits retained within the company could, for example, ultimately be reinvested into expanding your property portfolio.
If your limited company receives income from any business or assets other than your buy-to-let property, then it would be considered a trading company. It’s important to be aware that most buy-to-let lenders will only lend to SPV limited companies, as the inclusion of other business channels and income streams via the company structure arguably introduces an element of risk. There are, however, some more niche lenders who do offer buy-to-let mortgages to trading companies.
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