Buying property with a limited company buy to let mortgage

Summary of the case

• Clients were living with family, having formerly owned their own home
• Clients were in their 60’s, one retiree and one employed party
• Funds from sale of their residential property were used as a deposit
• Purchase of buy to let was through newly set up limited company

What we achieved for the client

• Completed a buy to let mortgage through a brand new limited company
• Secured a competitive discounted rate
• Got a deal with no early repayment charges, which if needed would allow the clients to switch product, without significant financial penalty, should rates change

Limited company buy to let mortgage purchase

The clients in this case were a couple, they came to us looking to invest in buy to let via a limited company they set up the day before we submitted their application.

The funds for the deposit had come from the sale of their residential property, as they had moved in with immediate family.

As a result, the clients were not “owner occupiers”, i.e. they did not own the home they lived in.

One party in the couple was retired, the other party was full-time employed, and both applicants were in their sixties.

The ultimate objective was to buy two properties, but the clients were keen to work in stages to make things more straightforward, so their starting point was to buy one property and that is what they needed our immediate help with.

Buying property using a limited company buy to let mortgage

The decision of whether to invest in property in personal name or through a limited company is an important one. In 2015, the government began to make several changes to tax laws relating to property and so this drove a trend towards incorporation, because for many people this was the more cost effective route to take.

There can be various tax and legal benefits to investing via a limited company, however, limited company buy to let mortgages are typically more expensive than those for individuals and there are other reasons why it is not always the right choice for everyone.

To establish if investing through a limited company is the right option for you, the appropriate source of advice is from tax and legal professionals.

Your mortgage advisor can outline the differences in mortgages, but they are not qualified to give advice on the tax or legal implications.

Can I buy property through a newly set-up limited company?

Yes you can. In fact, a newly set up company with no history behind it– in the eyes of the lender – is a good thing. It is a clean slate, showing no negative history (albeit no positive history either, but that does not matter) and it is certainly more beneficial to set up a new company to specifically handle investment in property, than use an existing, trading company structure.

This is because, if you ring-fence your investment in property within a limited company set up for this purpose, rather than use a trading limited company, the liability of the company is limited to just the property held within it.

If you were to invest using a previously trading company, the risk attached to the other business within the company structure has a bearing on the property investment, and is far less favourable to a lender – and you will find fewer lenders who will offer this within their criteria.

Investing if you are not an owner occupier

You may be concerned that not owning your home will stop you from investing in buy to let, but, only a small proportion of lenders do not accept non owner-occupiers. So, if you are buying your first property or investing mid-way through your property investment journey, there are plenty of options available.
Buy to let mortgages are designed to be financed by rental income from a third party. Therefore, where an applicant does not own their own home, the only real consideration for the lender is whether there is any evidence to suggest the applicant may want to live in the property.

There are advantages to a buy to let mortgage over a residential mortgage which may make this a risk.

Buy to let mortgages are commonly taken out on an interest-only basis, (where only the interest for borrowing the lump sum is charged) because as a landlord there is no need to end up owning a property.

By contrast, regulated residential mortgages are far more commonly offered on a capital repayment basis only (where the lump sum is also paid back as well as the interest). On a like for like basis this would make monthly mortgage costs cheaper.

A lender needs to be confident an applicant does not intend to live in the property, because this would breach the terms of the mortgage.

Age is just a number!

We often have mature clients approach us, fearful that their age is going to prevent them securing a buy to let mortgage. However, lots of lenders accept applicants who are over sixty or seventy years of age. There are even lenders who do not restrict on upper age limit at all.

I’m retired, can I get a buy to let mortgage?

Absolutely. Where a residential mortgage relies on you personally repaying the loan, and so being retired might place limits on your income, buy to let mortgages rely on the income the security property can make in rent, so your personal income is much less of an issue.

There are some lenders who will require your personal income to meet a minimum threshold (e.g. £20,000 - £25,000) but others set no minimum. This means so long as you have some income, from either a pension, employment or rent from another property, your application will be considered.

Outcome for the client

We secured the clients a limited company buy to let mortgage using their brand new limited structure, their age and collectively part-retired status was not obstructive to finding a great deal for them.

Given the changing buy to let marketplace (we were working with the client just as rates were up in the air, off the back of Base Rate and political changes) we found a discounted rate for the clients, which had no early repayment charges (ERCs).

At times of change, when fixed rates are not as competitive, this is a great option, because if discounted or tracker rates are lower you can take advantage of using them.

Investors often prefer a fixed rate, as it offers certainty in their monthly payments. Where a discounted or tracker rate can go up as well as down.
However, where there are no ERCs to pay if the rate you are on starts rising and is no longer competitive, and/or you want to fix to protect against further rate rises, you can do so without paying back a percentage of the sum you have borrowed as a penalty. So, you can get a cheaper rate at the time of application, without the risk that you are tied to it for years.