While the buy to let mortgage application process for limited companies is almost the same as for individuals, there are a few key differences borrowers need to be aware of. Consultant Mortgage Broker, Luke Worrell, explains what they are.
Broadly, the buy to let mortgage application process for limited companies doesn’t differ too much from applying in your personal name. However, there are some differences and possible extra costs that you should know about before you start.
Limited Company Buy to Let Mortgages: What You’ll Need to Start
Once you’ve taken professional tax advice and determined that a limited company is the most appropriate structure with which to invest in buy to let properties, there are a few things you’ll need before you embark on a mortgage application. These include:
A Limited Company: sounds obvious, but you’ll need to have set up your limited company to attain a mortgage Agreement in Principle (AIP). An AIP needs to have the same name for the mortgage ‘owner’ as the full mortgage application, whether the limited company name or an individual.
Correct Limited Company SIC Codes: all limited companies require Standard Industrial Classification (SIC) codes that tell Companies House what your company does. Lenders will check these to ensure your SPV limited company is only dealing with property and not trading with something else. The four most common SIC codes lenders accept are 68100, 68209, 68320, 68201.
A Limited Company Bank Account: while setting up a limited company is relatively quick, opening a business bank account can take longer. Your existing bank will probably offer a limited company account, but it’s worth shopping around to see if somewhere else can set it up faster. While you don’t usually need these details until you have a formal mortgage offer, I’d suggest getting this sorted early to avoid unnecessary delays.
A Deposit: the same as investing personally, you’ll need a deposit available to start the buy to let mortgage application process. There are many acceptable deposit sources for limited companies, most of which are the same for personal applications. This includes directors’ loans, gifted deposits, funds from property capital raises, proceeds from a property sale, intercompany loans and more. We recommend a minimum 25% deposit to access competitive buy to let mortgage rates. There are some products available with just a 20% deposit, but you’ll find higher interest rates here. For more information on acceptable deposit sources for limited company buy to let borrowers, see our blog on the topic, here.
Limited Company Underwriting and Personal Guarantees
Like borrowing personally, the people behind the limited company will be underwritten. Ultimately, this ensures the lender knows who is responsible for the mortgage should the limited company default. All directors are underwritten, and depending on the lender and the share size, shareholders may be underwritten too. As a director, you will need to provide financial information detailing income and other credit commitments. This is used to underwrite the ‘personal guarantee’, an additional form of security for limited company buy to let mortgages.
Limited Company Buy to Let Mortgage Applications: Other Things to Consider
The significant differences between individual and limited company buy to let mortgage applications come later in the process, but you need to be aware of them before you embark!
Solicitors/Conveyancers: most limited company buy to let lenders have a panel of solicitors for borrowers to choose from. Depending on the lender, this can be limited to three options! This is because lenders prefer dual representation, where the same solicitor represents them and the borrower. As you’ll be paying the lenders legal fees, dual representation is a good way to keep legal costs down. Of course, you can use your own solicitor, but this will cost more in fees.
Independent Legal Advice: if multiple directors and shareholders are required to provide personal guarantees, lenders may require you all to seek independent legal advice. Doing this ensures that, should there ever be problems down the line, everyone had all the facts about the arrangement they were getting into.
There’s a lot here to consider, so if you have any questions, you can call me, Luke Worrell, on 01732 471684 or email me firstname.lastname@example.org, and I’ll be happy to talk you through the process in more detail.
Here at Mortgages for Business, we have access to a vast number of buy to let lenders, giving you the best chance to find the most competitive rate. We’re experts at limited company mortgage applications and will support you and your application right through to completion, helping to take the stress out of the process for you!