Limited Company Mortgages
For many portfolio landlords and property investors, the decision to expand their portfolio through a limited company buy-to-let structure can offer tax benefits and liability protection. Limited company mortgages have become increasingly popular as investors recognise how companies can own property more efficiently. However, understanding how limited company buy-to-let mortgages work, the key criteria lenders apply, and the specific processes involved requires expert guidance. At Eden Hawk Financial Solutions, our experienced mortgage advisors throughout Cardiff, South Wales, and across the UK specialise in helping investors navigate this complex lending landscape.
Understanding Limited Company Mortgages
So what is a limited company mortgage? It’s a mortgage where a business entity – not an individual – buys residential or commercial property. When you decide to go down the limited company route, the company is the borrower and the registered owner of the property, as opposed to a personal buy-to-let mortgage, where the individual is the owner.
The main benefit of limited company mortgages is the fact that interest payments can be set against company profits, which may save borrowers money on corporation tax. The rental income from the property goes into the company accounts, and the business can claim interest from the mortgage as an expense, which can make a huge difference to your overall tax bill, especially compared to taking out a personal mortgage.
The Key Differences from Personal Buy to Let
Before you buy through a limited company rather than as a personal investor, you should understand. Lenders have different criteria for company buy-to-let compared to standard residential mortgages or personal buy-to-let loans.
Many lenders will want a personal guarantee from the company directors if they lend to a limited company. This means that if the company can’t pay the mortgage, the directors are personally liable for the debt. It’s important to get independent legal advice and discuss this with your mortgage broker to ensure your finances are in order before proceeding with your mortgage application.
Limited company buy-to-let mortgages usually have a larger minimum deposit, between 20 to 25% of the property value, and it’s not uncommon for lenders to vary their requirements depending on their specific criteria.
Meeting Lender Requirements
When you apply for a limited company mortgage, lenders will be looking for specific things. You’ll need to provide information about your company, including Companies House registration documents, the directors involved, and the company’s business structure. They will also want to know what sort of business you’re running, including your SIC code.
They may assess your company accounts, profit and loss statements, and cash flow projections to make sure that the rental income covers the mortgage repayments. Lenders may want to see accountancy support and professional tax advice from someone who can demonstrate that your business is financially sound.
They can also examine the company’s existing balance sheet and any loans already outstanding. They’ll calculate what amount of loan you can get based on how much rental income the property is likely to generate, usually requiring rental income to be at least 125 to 145% of the mortgage interest costs.
Applying for a Mortgage with a Limited Company
When you buy through a limited company, the mortgage application process requires detailed documentation and specific resources. Your broker needs to provide information about the company structure, the property location, the purchase price, and how the investment fits in with the company’s business objectives.
If the lender requires it, you’ll need to provide a personal guarantee from the directors, as well as confirmation of the shareholders involved, and evidence of professional tax advice. Documentation will need to include property details, valuation reports, and evidence of the company’s capacity to manage the loan.
Tax Benefits and Financial Considerations
One of the biggest benefits of limited company mortgages is the corporation tax relief on mortgage interest payments. Unlike personal investors who pay income tax on rental income, companies can claim the entire mortgage interest as a business expense, resulting in tax savings.
Notably, this also means you’ll pay corporation tax on company profits (currently 25% on profits over £50,000 for most companies). You should seek professional tax advice to decide whether this option is right for you and your long-term investment strategy.
When deciding whether to remortgage or expand your portfolio through a limited company, it’s not just about the corporation tax benefits; you need to consider the additional accounting fees, regulatory requirements, and the complexities of managing a company compared to personal ownership.
Partnering with a Specialist Mortgage Broker
Here at Eden Hawk Financial Solutions, our team of mortgage advisors is experienced when it comes to limited company mortgages. We can help you navigate this tricky area and make sure you get the most suitable deal for your investment. Our brokers have years of experience dealing with the intricacies of company-based property lending and have built strong relationships with lenders who care about supporting portfolio landlords and investors buying through limited companies.
Our team will walk you through the process, from figuring out whether a limited company structure is right for you to submitting your mortgage application. Whenever needed, we can offer referrals to independent solicitors and work closely with your accountant to make sure all the right boxes are ticked and all the necessary documents are in order.
Final Thoughts
If you’re thinking about buying a residential property or expanding your portfolio through a limited company, Eden Hawk Financial Solutions is here to lend a hand. Our experienced mortgage brokers will help you make sure your investment plans are in order.
Contact us today to speak with a specialist broker about limited company mortgages, and we’ll help you find mortgage solutions tailored to your business and investment needs.