Many landlords approach us with questions surrounding lender income requirements on Limited Company mortgage applications. As a common investment type, it’s important to understand what lenders will look for on your application to ensure you secure your property finance.
Property investors are familiar with the typical process of providing proof of income on a personal buy to let mortgage application. As such, there can be some confusion around how this process differs on Limited Company applications, especially for newly set up Companies. Depending on your Company and it’s set up, lenders will review your case in different ways, so it’s important to understand what you can expect with your application.
Income Requirements on Newly Set Up Limited Companies
We receive a large number of enquiries from landlords who have just recently set up their SPV Limited Company and are looking to begin investing through this structure. An ‘SPV’ Limited Company simply means the only thing your company can do is hold and let out property.
One of the primary benefits of founding an SPV is that you can set it up and start investing through it the very next day. However, as the company is brand new, it has no income within it to evidence to the lender that the mortgage is affordable.
Fortunately, this is not a problem, as lenders will underwrite the application with a focus on the Directors and Shareholders, as opposed to the company itself. As such, lenders will be treating your application as though you were investing in your personal name and using your own income to meet affordability criteria and underwrite the mortgage.
What Income Criteria Do I Need to Meet?
Whilst there are some lenders who have a minimum income threshold, typically around £25,000, there is an increasing number who don’t. Lenders on the whole simply like to see that you have an income which, compared to 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 slightly longer to set up, although there are some new online options which may be quicker.
Income Requirements for Established Limited Companies
For well-established SPVs, lenders will ask for two years of accounts in order to underwrite your buy to let mortgage application, as well as assessing the Director’s and Shareholder’s income.
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 financial accounts.
In the majority of cases, the mortgage lender will require that the director(s) of the SPV provide a personal guarantee. A personal guarantee means that, in the unfortunate event where the lender repossesses a property with the debt still outstanding, the applicant offering the personal guarantee will be 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 will be able to source the correct lenders for you.
Income Requirements for Trading Limited Companies
As a Trading Limited Company is, by nature, more complex, your application will require more underwriting when looking at your income. A large portion of lenders will need to see 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, so it’s best to speak with an experienced broker to help guide you with your application. Please seek professional tax advice before making any property investment decisions.
What if a Company Hasn't Shown Good Profit?
If your company has had a less profitable year, the accounts show an unexplained loss, or have declining year-on-year profits, then you may struggle to secure a mortgage through this structure. Lenders will ask for a credible explanation when underwriting your application so they can decide whether to accept the case.
It’s important to remember that, as with any mortgage 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. Lender stress testing tightened as a result of the tumultuous year we had last year, and continues to be tough for applicants to meet. If you’re looking to secure a new rate through your limited company, please do get in touch with our specialist brokers by submitting an enquiry here, or call us on 0345 345 6788. We can discuss the application process with you so you understand what lenders will be looking for, and go through what rates may be available to you.
This article was updated in May 2023.
31st May 2023