The proposed changes to buy to let mortgage interest relief on personal borrowing in George Osborne’s Summer Budget 2015 has sparked a flurry of questions about property investors switching to borrowing in via a corporate vehicle.
Here are the answers to the most common questions about limited company buy to let mortgages.
Q. Are Ltd company buy to let mortgages hard to get?
A. Not at all. Even though there are fewer lenders offering these products we help investors with this type of transaction on a daily basis. According to our buy to let mortgage rate finder and calculator, of the 800+ buy to mortgage rates currently on the market, 110 are available to limited companies.
Q. Are buy to let mortgages for Ltd Co’s more expensive?
A. In general, yes, they are. I would say that, on average, you can expect to pay around 1-1.5% more on interest rate, plus the arrangement fees tend to be charged as a percentage rather than a fixed amount. Also, it’s worth pointing out that it is very normal for the lender to want their own solicitor to act for them so you may end up covering the cost of two legal bills. However, while the pricing is higher, many landlords find that the tax advantages outweigh the additional costs, although you should always check whether this applies to you with a qualified accountant.
Q. Will I have to provide a personal guarantee if I take out a limited company buy to let mortgage?
A. Yes. All lenders will require that the directors/majority shareholders provide personal guarantees.
Q. Does a personal guarantee mean the lender will take a charge on my home?
A. No, it does not. A personal guarantee means that if the lender has to repossess the property and after sale, they are still owed money, the person offering the PG will be liable for that money. This would be same if you had borrowed personally.
Q. Can I get a fixed rate buy to let mortgage if borrowing through a Ltd Co?
A. Yes, lenders are offering 2, 3 and 5 year fixed rates as well as discounts and trackers.
Q. Will I have to put in a bigger deposit if I borrow through a Ltd Co?
A. No. Like rates for individuals, Ltd Co buy to let mortgages are available to a maximum of 85% loan to value; however, there is much more choice to 75% LTV.
Q. Is there a particular type of limited company I should establish in order purchase buy to let properties?
A. In the mortgage world, there are two types of companies. The first are those which only hold property and do nothing else - these are known Special Purpose Vehicles (or SPVs). Companies which do anything other than this are known as trading companies. Most buy to let lenders which lend to limited companies will lend only to SPVs although there are a handful which will lend to trading companies.
Q. Can I borrow through a newly created limited company if it does not have any accounts?
A. Yes, you can. Directors and/or majority shareholders are always required to offer a personal guarantee and as such, the lender’s focus is on these people and the mortgage is underwritten on them. Therefore, a new company is no problem as long as the directors/majority shareholders tick the right boxes.
Q. How will my taxation work through a limited company?
A. This is quite complex and should be talked through with a qualified accountant or tax adviser.
To discuss limited company buy to let mortgages further, do get in touch with me or any of our expert mortgage brokers on 0845 345 6788.
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