Adam Henderson, a consultant mortgage broker at Mortgages for Business, answers some of the most commonly asked questions about the buy to let mortgage application process for SPV limited companies.
Q. Does it take longer to process a limited company application?
A. Not necessarily. We commonly see limited company buy to let applications complete in a similar time to individual applications. While this wasn’t the case a few years ago, the number of investors now using a limited company has increased so much that lenders have had to get up to speed!
Newly established SPV limited companies are typically quicker to process, as background checks are only carried out on the director(s). Established limited companies sometimes take a little longer as checks are done on the directors and the company
Q. What are the common hold-ups?
A. The post-offer legal work. While a significant number of lenders now allow solicitors to act on a dual representation basis, which speeds up the process, some still require separate representation, which, as there are more solicitors involved, can slow the process.
Q. Will I have to provide a personal guarantee when taking out a limited company buy to let mortgage?
A. Most likely, yes. While the majority of lenders require personal guarantees, there is only one that doesn’t. If needed, personal guarantees are always required from the directors and typically any majority shareholders too.
Q. SPV or Trading Limited Company? Does it matter?
A. Yes. Lenders treat SPV limited companies and trading limited companies very differently because they are entirely different entities.
Typically, buy to let lenders prefer SPVs as they pose less risk and are easier and quicker to underwrite. With trading limited companies, there are considerably more factors that can impact profitability, and therefore the company’s ability to service the mortgage.
There are 12 buy to let lenders offering mortgages to trading limited companies, compared to 34 that accept SPV limited companies. So, you’ll undoubtedly get more choices using a SPV limited company.
Q. Are there any extra costs involved for borrowers?
A. Technically, yes. However, having sought professional tax advice before choosing to invest via a limited company, you’ll know how much you’ll save in tax, which should outweigh those costs. The main additional costs to consider are:
Interest rates: while the gap between buy to let mortgage interest rates for individuals and limited companies is slowly closing, you should still expect a higher rate when investing through a SPV.
Legal fees: you should take additional costs for personal guarantees into consideration, and if the lender you choose doesn’t allow dual representation, then you’ll likely need to pay their legal costs too.
Incorporation costs: if you’re purchasing personally owned property into a new SPV limited company, you will need to pay Stamp Duty Land Tax and possibly Capital Gains Tax. For more information on the buy to let incorporation process, see our blog on the subject here.
You must seek professional tax advice before investing via a limited company. While it’s an increasingly popular buy to let investment structure, it isn’t cost-effective for everyone.