As more investors opt for limited company structures to purchase property, many ask us how much income their limited company needs to qualify for a buy to let mortgage? Buy to Let Consultant, Charlie Potter, explains everything you need to know about limited company income requirements for buy to let investment.
New Special Purpose Vehicles (SPVs)
The majority of limited company buy to let mortgage applications we receive are from individuals who have only recently set up an SPV limited company. One of the benefits of an SPV is that you can set it up and start investing through it the very next day. However, as the company is new, there will be no income to put on a buy to let mortgage application. Thankfully, this is not a problem as when the application is being underwritten, the lender will focus on the Directors and Shareholders of the limited company, treating your application as though you were investing in your personal name and using your income to satisfy their criteria and underwrite the mortgage.
Some lenders have a minimum threshold, often £25,000. There is an increasing number of lenders who have no minimum income requirement, they simply need you to have an income which, versus the borrowing, does not leave you overly indebted.
To start investing via your new limited company, you will need a business bank account. These can sometimes take longer to get up and running than the limited company does, although there are some new online options which are pretty immediate!
Established Limited Companies
For more established SPVs, in addition to looking at the Directors and Shareholder finances, lenders will ask for two years of accounts in order to underwrite your buy to let mortgage application, however, the rules on income are the same as with a newly set up company.
Will you need a professional accountant to package your accounts for your buy to let mortgage application? Not always! As SPVs do not “trade”, lenders do not necessarily require formal accounts, just accurate ones! Your broker will be able to advise if a lender requires professionally produced accounts.
In the majority of cases, the lender will require that the director(s) of the SPV provide a personal guarantee. A personal guarantee means that, in the unfortunate situation where the lender repossesses a property, and there is still money outstanding, the person offering the personal guarantee be will liable for the remaining balance. It’s important to note that this does not include taking charge of your own home.
Some lenders don’t require personal guarantees, so if this is something you’d like to avoid do let your broker know, and they should be able to source the correct lenders for you.
Trading Limited Companies
Buy to let mortgage applications via a trading limited company are more complex and therefore require more underwriting. The majority of lenders will need two years of profitable accounts, showing an income of £25,000 - £80,000+. We do have access to some lenders that don’t have a minimum taxable income threshold.
If the company has had a less profitable year, shows an unexplained loss or has declining year-on-year profits, then you may struggle to secure a mortgage. Lenders will ask for a credible explanation so they can decide whether to accept the application.
As with any application, the company needs to meet lender stress testing requirements, to prove that should the property be void there are sufficient funds to cover the mortgage repayments.
If you’d like to discuss your limited company property investment plans, do not hesitate to give me a call on 01732 471648 or email me email@example.com and I will be more than happy to assist.
We strongly recommend that you take professional tax advice before making any changes to your investment strategy.
This article was updated in September 2020.