Having increased in popularity over the last five years, limited company buy to let mortgages are more common than ever. However, there are still many myths around this property investment structure that need debunking.
While we can’t cover off every piece of buy to let mortgage lending policy that sits around limited company investment, here are six common misconceptions that we get asked about daily. If you’ve ever thought these were true, you’re not alone!
1. “SPVs are different to limited companies”
An SPV is a limited company. SPV (Special Purpose Vehicle) relates to what the company does, as specified by it’s relevant SIC (Standard Industrial Classification) code. These codes classify a company into a particular industry and are used for tax purposes.
The SIC codes used to classify that a limited company deals with property are usually 68209 or 68100.
You can set up a new limited company on the Companies House website in about 15 minutes, and it costs c£20. You then need to call Companies House to register the relevant SIC code and hey presto, you have an SPV limited company!
2. "A limited company needs two years’ of accounts 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. How? Most lenders who offer buy to let mortgages for limited companies will take unsupported personal guarantees from the company’s directors (and shareholders). For new limited company investors, this means that your mortgage application is assessed in a similar way to personal buy to let mortgage applications, i.e. the person is assessed rather than the company itself. Therefore, it’s possible to borrow through a brand new SPV limited company.
If your limited company isn’t an SPV specifically for the purpose of purchasing property, then lenders will assess your affordability differently. I’d recommend speaking to a broker who will be able to help you with your options.
For more information about the income requirements for limited company buy to let mortgages, you can see our blog on the topic, here.
3. “Limited company buy to let mortgages are more expensive”
Yes and no.
Pricing for limited company buy to let mortgages has decreased in the last few years, mainly because more lenders have entered this market and increased the competition. That said, limited company mortgage rates are higher than high street vanilla products that are exclusively available for individuals. However, whether it’s more expensive in the long run really depends on your tax position, which is why you should seek professional tax advice before deciding on your investment structure.
While we can’t give you tax advice, we can draw up mortgage illustrations to compare personal vs limited company buy to let mortgage options to help you and your tax adviser make an informed decision.
4. “The stamp duty surcharge does not apply to my limited company’s first buy to let purchase”
If you purchase property through a corporate structure, e.g. a limited company, then the surcharge applies, irrespective of your personal position. To check how much stamp duty you’d pay, you can use our stamp duty calculator, here.
5. “I have bad credit, but if I borrow through a limited company it won’t matter”
As we mentioned earlier, even with limited company mortgages, the underwriting is based on the strength of the borrowers behind the company, as they’re who’s offering the personal guarantee. Therefore, their credit history will be searched and depending on what they find, it could cause an issue.
6. “I can transfer my personally owned buy to let property into my limited company”
The term ‘transfer’ in this situation is misleading.
To incorporate a personally owned property into your limited company is a sale and purchase transaction, meaning that the process is the same as if you were purchasing a new property. Your limited company will still have to purchase the property at market value, pay stamp duty (and the surcharge) and you may be subject to capital gains tax too. You should always seek professional tax advice first, as this will ensure whether or not it’ll be a financial benefit to you in the long term. To read more about this process, please see our blog on the topic, here.
While these are the most frequently believed misconceptions about limited company buy to let mortgages, this is not an exhaustive list. Our buy to let brokers are incredibly knowledgeable about this type of investment structure and will be happy to answer any other questions you have. To get in touch, call 0345 345 6788 or email email@example.com.