Wednesday 24 October 2018

About Limited Company mortgages

Author: Andrew Page

Mortgage info

Thanks to recent changes to the tax rules relating to property ownership, an increasing number of buyers are opting to purchase property, especially buy to let property, through a limited company.

These companies are often created with the sole purpose of buying property and most have no other function other than owning that property. Offering a range of benefits over personal ownership, this method of buying property could offer you improved affordability and increased returns.

SPVs Vs trading companies

If you run an active business and are looking to buy your commercial premises or purchase another property to boost your income, you’ll be assessed as a trading company. If however you’ve created a company with the sole purpose of buying property, you’ll be classed as an SPV. Trading companies will need to prove that they have the income necessary to cover their repayments and that there aren’t any imminent events that will put a serious hole in their income.

In both cases, lenders will ask for the directors of the company to guarantee the loan. As Property Geek says:

“This just means that if the company ceases trading or is unable to pay its debts, the lender can pursue the directors personally for the money owing: you can’t just say “oh sorry, the company failed” and expect the debt to be written off.”

In the case of an SPV, this guarantee is especially important as the company itself has no income with which to cover the repayments.

The benefits of a limited company mortgage

There are a number of benefits to buying property using a limited company. For a start, buying via an SPV can help borrowers access loans they wouldn’t ordinarily be able to. For example, if a buyer who earned £18K set up a SPV and used the company to apply for a mortgage, there are lenders who would consider the applicant even though they earn less than £25K.

Another important benefit of buying a property using a limited company is that it provides higher levels of tax relief. Between 2017 and 2020, the amount of tax relief that buy to let landlords can claim will be progressively cut from 45% to 20%. This will make owning rental properties a lot less profitable.

However, if the property is owned by a limited company, the amount of tax payable will be a lot lower. Limited companies are also not required to pay income tax when investing profits to secure more properties, something that can make it easier to grow your portfolio.

Limited company mortgages offer a range of benefits over individual loans. To find out more, and to see if this type of mortgage is right for you, get in touch with a member of our team today.

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Written by: Andrew Page