Gareth Richards, consultant mortgage broker at Mortgages for Business answers some of the most commonly asked questions from brokers about the buy to let mortgage application process for limited companies.
Q. Does it take longer to process a limited company application?
A. Yes. I think it is safe to say you should allow for extra time.
Generally applications by individuals and newly established SPV limited companies take a similar time to process, as the background checks are only carried out on the individual applicant/director(s) of the SPV. However, SPVs with existing properties and trading limited companies will take slightly longer as checks will need to be carried out on the individual and the company.
The underwriting for limited company applications also tends to follow more of a manual process, which of course takes longer.
Q. What are the common hold-ups?
A. If we are to see hold-ups these are normally at post-offer stage. With limited company applications both the lender and borrower require separate legal representation, so unlike an individual application there is more than one solicitor involved, which tends to slow things down.
Q. Will my client have to provide a personal guarantee when taking out a limited company buy to let mortgage?
A. Yes. All Limited Company lenders will require that the directors (and potentially majority shareholders) provide 100% personal guarantees.
Q. SPV or Trading Limited Company? Does it matter?
A. According to our buy to let mortgage calculator and rate finder today there are 158 products available to SPV limited companies at present and 50 available to trading limited companies - so from a choice perspective purchasing via an SPV is definitely the route to go down.
Lenders prefer Special Purpose Vehicles (occasionally referred to as Special Purpose Entities) as they pose less risk and are easier and quicker to understand and underwrite. The borrowing itself is guaranteed by the directors/shareholders, so if there was an issue with payments and the lender had to repossess the property and after sale, they are still owed money, those offering the personal guarantee would be liable for that.
From an application perspective SPV limited companies also tend to complete more quickly. Trading Limited companies take longer to process as they tend to be more complex and involve a higher level of underwriting.
Q. Are there any extra costs involved for borrowers?
Unfortunately yes, but often these are outweighed by the tax savings. You clients will need to consider:
- Solicitors fees – for limited company applications both the client and the lender need separate legal representation, so two lots of solicitor’s fees must be paid
- Increased rates and arrangement fees – limited company applications involve more underwriting which is why some lenders charge more
If individuals are selling their personally owned properties to their limited company, they will also have to factor in other potential costs including Early Repayment Charges, Stamp Duty Land Tax and Capital Gains Tax.
If you are looking to place a case for a limited company do give me a call on 01732 471627.
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Investing in buy to let: Trading Ltd Co's versus SPV Ltd Co's
Buy to let - from personal to limited company ownership