It would be impossible to cover every single piece of buy to let mortgage lending policy which sits around limited companies but what I wanted to do was put to bed some myths.
Listed below are the six most common misconceptions we get asked about on a daily basis, so if you thought any of these were true, you are not alone!
1. SPVs are different to Ltd Companies
An SPV IS a Limited Company! The SPV bit (Special Purpose Vehicle) relates to what the company actually does. And for that you’ll need a particular SIC code, usually 68209 or 68100 for SPVs relating to property.
You can set up a new Limited Company online at the Companies House website; it costs c£20 and takes about 15 minutes to do. You can then call Companies House and register the company as having the relevant SIC Codes and hey presto, you have an SPV.
2. A Limited Company needs 2 years’ books to get a buy to let mortgage
Not if it’s an SPV Limited Company.
You can set up an SPV Limited Company today, and borrow through it tomorrow. The reason this is possible is that the lender will take unsupported personal guarantees from the company’s directors and/or shareholders and because the buck ultimately stops with these people, the lender’s underwriters will assess them and not the company itself. Therefore, a brand new company is fine.
3. Limited Company buy to let mortgages are really expensive
Well, I guess that depends on your definition of expensive.
Yes, pricing is higher than high street vanilla buy to let rates which are available ONLY to individuals, but you need to look at this in conjunction with your tax position (get specialist advice please!) to figure out which would work better for you. It is also worth adding that the competition within the Ltd Co buy to let mortgage space has become more competitive over the last 12 months and pricing is down on where it was when, for example, I took my Ltd Company buy to let mortgage – good news for you, me, not so much!
4. It’s my company’s first buy to let purchase, therefore the stamp duty surcharge does not apply
Sorry folks, but it does.
The minute you use a corporate structure, i.e. a limited company, to purchase a property the surcharge applies, irrespective of your personal position. There is a really good stamp duty calculator on the government tax service website if you want to check.
5. I have bad credit, so if I borrow through a company it won’t matter
As mentioned earlier, the underwriting of the mortgage really hinges on the strength of the borrowers behind the company, i.e. those who are offering the personal guarantee, and those people will be credit searched. Any nasties (within varying degrees) will be unearthed and could be a problem.
6. I am going to transfer the buy to let property I already own into my company
Largely speaking, you can’t do this.
The company will need to purchase the property from you, in the same way it would be purchasing it if you were buying via an estate agent. The company would need to pay a fair market price, the higher rate of stamp duty, and you may be subject to capital gains tax. There are some occasions when this is not the case so do make sure you take professional tax advice first.
There are certainly more than six misconceptions regarding limited companies and buy to let mortgages, and I’ll write about more in the coming weeks. In the meantime, if you have a question on this topic, don’t be afraid to ask.
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