We hear many common questions and misconceptions about purchasing a buy to let property through a Limited Company. Below, we cover the top five and provide you with some tips to help speed up the application process.
1. Why invest through a Limited Company?
As many landlords have found, the primary benefit of investing through a Limited Company instead of your individual name is the potential tax savings. Following the changes to tax relief on finance costs for individual landlords, investing via a company structure can be more tax-efficient if you fall into the 40% higher-rate income tax band. Please seek professional tax advice before making any property investment decisions.
You may also be able to borrow more per pound of rental income with a Limited Company, as lenders stress-test these applications more generously. Affordability for SPV Limited Companies is typically based on a ratio of 125% at pay rate, compared to 145% for individuals.
2. What type of Limited Company Structure is right for me?
You need to decide whether to invest through a Special Purpose Vehicle (SPV) Limited Company or your Trading Company.
An SPV Limited Company is set up solely to hold property and nothing else. These structures are more straightforward to understand and underwrite for lenders, giving you access to more competitive rates than you could with a Trading Company. Setting up an SPV is quick and costs as little as £12.
Your Trading Company will be the company that you run your everyday business from. Given that there are many more elements to this type of structure, the underwriting process will be much more in-depth and complex for the lender. Consequently, fewer lenders offer to Trading Companies, and rates can be slightly higher. However, plenty of property investors still purchase through their Trading Companies.
Whilst most lenders require a director’s personal guarantee for both SPV and Trading Limited Companies, there are a number that won’t request these. It’s also worth noting that lenders will need one to three years of accounts showing profits on Trading Company applications. However, an SPV company can be lent to from day one.
3. How can I speed up my mortgage application?
The most effective way to ensure a quick and efficient mortgage application is to have all your documents collated and ready to submit to your lender. Working with an expert broker should help with this, as they can check that you’ve completed everything correctly for the lender to review and answer any questions you may have.
An experienced broker will also be able to recognise what may concern a lender before you submit your application, which could save you time and money. Your broker will then be able to discuss these with you and return to the lender on any concerns as they arise.
4. What is a SIC code, and why is it so important?
The Standard Industrial Classification of Economic Activities (SIC) is used to classify businesses by their economic activity. You must provide this when filing the SPV’s Annual Return with Companies House, and most property investors require a SIC code from Section L: Real Estate Activities.
5. Which lender will be best for my application?
As mentioned above, whether you’re purchasing through an SPV or Trading Limited Company will impact the number of lenders that you have access to. Many factors determine which lender and mortgage product is best for you, such as the complexity of the case, your financial situation, and your property investment plans. Click here for more information about Limited Company borrowing.
Working with an experienced whole-of-market mortgage broker is the best way to ensure you access the right mortgage deal. Our brokers’ understanding of the market and expertise in the buy to let space means we can quickly identify which lender most suits your property finance needs. It’s important to remember that the cheapest rate isn’t necessarily the best option for you, and working with an expert is the only way to have complete confidence in your property investment decisions.
To see what types of rates you could access, visit our buy to let calculator here.
You can get in touch with our expert brokers by submitting an enquiry, or calling us on 0345 345 6788.
