Buy to let mortgage broker Nick Helm explains how landlords who own property personally can save money when incorporating.
With 1 April fast approaching, many landlords are looking at their property portfolios and considering the implications of the new Stamp Duty Land Tax changes that come into effect from this date.
For some it may make sense to continue holding their property investment(s) in their personal names, while for many others “remortgaging” into limited company ownership will have longer-term tax benefits.
Landlords who have chosen to “remortgage into limited companies” are in reality, selling their personally owned property into a corporate structure and so Stamp Duty becomes payable. (And so might Capital Gains Tax – do take professional advice).
Our Limited Company Buy to Let Index shows that the number of limited company buy to let applications transacted via Mortgages for Business doubled in the last three months of 2015 from 20% to 40%. The immediate rush can be attributed to the introduction of the 3% stamp duty surcharge on 1 April as landlords look to save thousands of pounds by getting these transactions completed before the deadline.
If you are switching your properties into a limited company (SPV or trading business), here are some ideas on how you could reduce your costs.
When it comes to the legal fees many lenders insist on two solicitors – one for the lender and one for the borrower (known as separate representation). Two sets of solicitors means two sets of fees. However, there are some lenders which are happy to use just one legal firm to represent both the borrower and the lender (known as dual representation).
Most lenders will work off a single fee scale, whether the applicant is a company or an individual borrower. However, Kent Reliance is unique in that it charges a valuation fee premium to limited company borrowers! It does however, offer products to limited companies 85% LTV (the highest LTV available), so if you have a smaller deposit, paying the premium might be your only way forward.
The larger your deposit the better the interest rate you can expect to receive. This could save you thousands of pounds over the life of the mortgage.
Gone are the days of reversion rates at 1% over base. If you don’t plan to switch rates after the initial term is up, make sure you pay close attention to the reversion rate. These days, lenders’ rates typically revert to c.5% but some lenders charge way more. Kent Reliance (I’m not picking on them really) charge an eye-watering 6.58%.
Early Repayment Charges
Some lenders have products that come without any ERCs which is really useful for borrowers who may want to redeem their mortgage early. Kent Reliance can be a good choice if no ERCs are important.
Lender arrangement fee
If you want to save money up front, many lenders allow borrowers to add the arrangement fee onto the loan. If you prefer not to pay any arrangement fee at all, currently only Paragon Mortgages is offering fee free products to limited companies.
It is worth bearing in mind, that your circumstances dictate your eligibility for a particular product, so you may not always be able to save on all of the points above. But whatever your circumstances we will work to achieve the best rate for you and will always take into consideration your particular preferences.
There is currently a good deal of choice out there for limited company borrowers and rates are extremely competitive. Some lenders are not even distinguishing their pricing between individuals and limited companies, including our own brand Keystone Buy to Let Mortgages. So do get in touch to talk through the options. I can be contact directly on 01732 471608 or via email: email@example.com.
Alternatively, you can call the main line 0845 345 6788 to speak to any of my broker colleagues. We are all qualified to help with buy to let mortgage enquiries for limited companies.
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