We are often asked what income does a limited company need to show to qualify for a buy to let mortgage? It depends on the type of company and the circumstances of the directors and/or shareholders. Luke Worrell, Mortgage Advisor explains…
New Special Purpose Vehicles (SPVs)
The majority of Limited Company buy to let mortgage applications that we receive are from individuals who have recently set up an SPV limited company. Because the company is new, there will be no income to show to a lender.
In these circumstances, lenders will underwrite the limited company as though you are applying for a buy to let mortgage in your personal name, i.e. your personal income will be used to satisfy criteria. Some lenders have a minimum income requirement of £25,000, for example, but we also have access to lenders that do not have a minimum income requirement. However, they will still require you to have some form of income.
For more established SPVs, you will need to show 2 years of healthy accounts. Some lenders will accept accounts kept by the applicant rather than a formal accountant since the SPV does not “trade”.
If the income of an SPV is less than £25K per annum, it is likely the lender will consider the director’s personal income too.
While the number of products available to SPVs continues to grow, the majority of these are still only available through brokers like Mortgages for Business.
In most cases, the lenders will require that the director/s provide a personal guarantee. This means that should the lender have to repossess and after the property sale they are still owed money, the person offering the personal guarantee will be liable for that money. The lender will not, however, take a charge on the person’s home. As a well-established, whole of market broker, we have access to a lender that doesn’t require personal guarantees. Only a select number of brokers have access to this lender, and we are one of the lucky ones!
Trading Limited companies
If you are looking to apply for a mortgage via a Trading Limited company, this will require a greater level of understanding to underwrite. In these cases, most lenders will need to see two years of strong accounts which show an income level of £25k - £80k+. However, there are some lenders that will lend if a taxable income can be proven, regardless of the amount.
If the company has a slow year, has made an unexplained loss or shows year-on-year steadily declining profits, the directors may struggle to get a mortgage because lenders could think that you are withdrawing company funds to use as a deposit, and this could inevitably put the limited company in a damaging position. An explanation will need to be provided and lenders may take a view on the client’s scenario.
Regardless of the amount, lenders want to see sustainable income in some form or another as this will give the lender comfort that should the property go a couple of months without a tenant, it wouldn’t leave the client in a financially difficult place.
If you would like to discuss any of the above points or have any questions around the matter, please feel free to contact me on my direct dial 01732 471684 or you can email me: firstname.lastname@example.org
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*Updated in September 2019.