If you already own a Limited Company and are looking to purchase a new property, getting a mortgage can be tough but not impossible. While some mortgage lenders will consider lending mortgages to trading companies, most will only lend to Special Purpose Vehicles (SPVs).
An SPV is a Limited Company designed especially for the purpose of Buy to Let activities i.e. the purchase/remortgage of residential properties for letting. Limited Company mortgages & SPVs are becoming increasingly popular ever since the Chancellor announced plans in 2015 to cut landlord tax relief. The higher-rate taxpayers who own buy-to-let properties will pay more tax, and because of this, Limited Company mortgages & SPVs are set up by landlords moving away from the traditional buy-to-let business models to limited companies.
Some of the benefits of a Limited Company or SPV include:
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Higher Tax Relief - Paying corporation tax on a limited company (which will be 18% by 2020) could be more beneficial than paying income tax on the property without the tax relief that has historically applied.
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Personnel funds can be drawn back out of the company – Any funds that you inject into your Limited Company. (e.g. mortgage deposit) can be drawn back out by way of directors loan.
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No income tax when reinvesting profits to secure more properties – Generally you will be able to grow BTL portfolio more quickly within a Limited Company. as there will be no income tax on the retained profit, meaning more cash to re-invest.
Things to consider:
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Higher Mortgage Rates – Generally speaking most lenders charge higher interest rates and fees for limited company mortgages compared to personal Buy to Let mortgages
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No Capital Gains tax allowance – Whereas an individual selling a personal Buy to Let property would benefit from the allowance at the prevailing rate at the time of sale.
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Additional costs of running a Limited Company - such costs include the preparation of accounts, company tax and corporation tax calculations for HMRC, filing at Companies House, legal fees, and annual auditing if applicable.
Newhouse Financial Services regularly arrange ltd company mortgages for new and existing clients - if you want to be one of them get in touch and one of our specialist mortgage advisors
will be happy to answer any questions you may have as well as show you what options are available to you.
There is no guarantee that it will be possible to arrange continuous letting of the property,
nor that rental income will be sufficient to meet the cost of the mortgage.
Important information
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1%, but a typical fee is 0.3% of the amount borrowed.