Over the last 12 months, the number of mortgage applications made by limited companies has skyrocketed. According to @mortgagesols, “The number of buy-to-let providers lending to limited companies has increased by 47% over the past year.”
As the vast majority of these applications are for buy to let loans, this dramatic increase points to a significant change in the buying behaviour of the UK’s landlords.
If you’re currently considering investing in a buy to let property, or if you own one or more rental homes and want to ensure you’re in a strong financial position, understanding the ins and outs of limited company mortgages is essential. Keep reading, to find out more.
Why are landlords applying for limited company mortgages?
One of the main reasons that landlords are applying for limited company mortgages is that it might put them in a stronger financial position. Since April 2017, the Government has been slowly phasing in higher tax rates for landlords. By April 2020, landlords paying higher rates of income tax could see the profits from their rental properties reduced to almost nothing thanks to these new rules and regulations.
However, if landlords buy their properties using a limited company mortgage, they won’t be subject to the same rates. In fact, using a limited company to purchase buy to let property might save landlords a huge amount of money, especially if they fall into the top rate of tax liability. By reducing the amount of tax landlords have to pay, limited company mortgages can help to boost rental profits and make landlords a lot better off.
Who can apply for a limited company mortgage?
In order to apply for a limited company mortgage, you need to own a limited company. However, this company doesn’t actually need to buy or sell anything and can be created with the sole purpose of purchasing property.
Anyone can set up a limited company. Once the company has been created it can be used to purchase buy to let homes almost immediately. If the company itself doesn’t earn any money, banks will look at the personal finances of the business owner. Although they’ll be assessed on roughly the same criteria as individual buyers, the affordability tests for limited company mortgages aren’t quite so rigorous. This can make it easier for buyers on low incomes, and those with non-standard earnings to get on the property ladder.
If the limited company is already established and has been trading for a number of years, banks will look at the business’ books when assessing affordability. If the business is profitable, securing a loan shouldn’t be a problem. However, if the company is struggling, banks may think twice before offering you a mortgage.
Find out more about limited company mortgages and the various mortgage options available to you by getting in touch with a member of our expert team.
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Written by: Andrew Page