This information should not be interpreted as financial, tax or legal advice. Mortgage and loan rates are subject to change.
Specialist limited company borrowing
Summary of the case
- Buy to let purchase via an SPV which comprised 10 shareholders but only 20% of the shareholding wanted to be named on the mortgage
- The deposit was provided in equal 10% shares across all 10 shareholders
What we achieved for the client
- Found a lender who would accept:
- First time landlord applicants
- 10 shareholders
- Deposit split
- Applicants having only 20% of shareholding
- Completed the purchase in good time
The challenges of the case
On the surface this case was for the purchase of a standard 3 bedroom terraced house. However, the application was a complex limited company structure, which made it very tricky to place.
Whilst the limited company had ten shareholders, only two were directors of the company, with all ten shareholders (including the two directors) having an equal 10% stake in the deposit for the purchase.
This meant that the applicants named on the limited company mortgage only had a 20% shareholding. Typically, buy to let lenders will look for limited company applicants to have an 80% shareholding in the property, which illustrates how far from the ‘norm’ this particular set up was.
The other area of caution for buy to let lenders, when assessing acceptance of a limited company application, is the broad distribution of ownership of the property. A lot of lenders are unwilling to accept a syndicate-style structure of property ownership, so it was the job of our advisor to find someone who would.
Furthermore, the two directors who would be named on the mortgage application were first time landlords. So, whilst they had experience in property through owning their residential homes, buying to let was a new proposition for them.
We consulted with two potential lenders, but it actually came down to just one who would accept the application.
Our specialist expertise meant that we knew who to approach, within our buy to let lender panel about the case to get the deal across the line.
Need to knows about limited company buy to let applications
When you talk to your mortgage advisor about an application, the process is fundamentally the same. But, you may not yet have decided whether or not to take the limited company investment route.
A limited company set up purely for the purposes of investing in property is referred to as a Special Purpose Vehicle (SPV).
It is possible to invest through a limited company already trading in something else, but typically the lender options are more restricted.
Setting up a new limited company is relatively straightforward, and there are lenders who can help with freshly set up limited companies.
Limited company buy to let and the tax implications
One of the biggest considerations for many landlords, when deciding whether to borrow through a limited company or not, are the tax implications.
Mortgage brokers are not qualified to give tax advice, it is a completely different specialism, so you should expect any mortgage advisor to advise you to take professional tax advice on the route you take.
What can be useful though, is to take to that discussion the mortgage rates you are eligible for under each scenario – individual investment versus limited company investment.
Typically, limited company buy to let mortgage rates are higher than those for individuals. Your mortgage advisor can run through both scenarios with you.
Personal guarantees required by limited company buy to let mortgages
Buy to let lenders will require the directors of a limited company be named on and give personal guarantees for the mortgage, depending on the level of shareholding the director has.
Where the shareholding is less than 5%, this may not be required and, in the case described above, we were able to secure even greater flexibility around this point with the lender.
Limited company subsidiaries and buy to let investing
Where a limited company is a subsidiary of another, a lender will normally want to see that the directors and shareholders for both are the same.
This is because the lender will want to see that all parties have an equal share in decision making. It is also because, were a repossession to take place, anyone not directly linked with both companies could add complexity to pursuing the debt. For example, if a director or shareholder of the umbrella company did not also hold the same standing in the subsidiary company responsible for paying the mortgage, they may dispute any pursuit of the debt, as they were not involved in mortgage being paid.
If you are looking to invest in buy to let through a limited company, call our advisors or enquire online now.