More and more investors are looking to buy investment properties within a limited company structure. This concept is not new, experienced investors and developers have been doing this for years.
More recently we are seeing an increase in the number of enquiries concerning limited company mortgages and a lot of these are from first time property landlords.
Most will require a mortgage to buy a property but there is often confusion about what type of mortgage is needed when using a holding company. While we can’t tell you whether buying through a company is the right decision, this article aims to explain the mortgage availability and how you apply.
What type of limited company is needed?
Within property investment your company needs to be set up in the right way for it to be acceptable to a mortgage lender. Any mortgage application will be declined if the limited company (and directors) do not match their lending criteria.
Broadly speaking there are two types of company:
- A trading business. This is a company that has staff, premises and ‘does’ something. It trades and aims to make a profit.
- A non-trading holding company. While this company may have staff it does not trade or have an activity, it is a passive holding company.
Lender’s don’t generally like dealing with trading businesses where the purpose of the loan is for property investment. It’s fine where a business needs a commercial mortgage to buy it’s own premises but not for investing.
Their preference is to deal with a holding company, one that has been setup to just passively own properties. This type of company is known as an SPV.
What is an SPV Limited Company?
SPV stands for Special Purpose Vehicle and it’s a term most commonly used within property and mortgage situations.
When you setup, or register a new company it is done through Companies House. Companies House is a government executive agency that handles the administration of limited companies within the UK.
When you register a new company you need to choose the best SIC code for your business. The SIC code forms part of the initial registration with Companies House and provides a description of your company’s type of business, or its activity.
The lender will be checking to see if these are correct and the most common ones are:
- 68100 – Buying and selling of own real estate
- 68209 – Letting and operating of own or leased real estate
- 68320 – Management of real estate
What types of mortgages are available?
You won’t be able to apply for a residential mortgage on your on home but SPV mortgages are available for:
Buy to let
There’s been a large increase in landlords moving over from a personal buy to let mortgage to using an SPV with a limited company buy to let mortgage. For the right person this can improve your tax situation and of course you can fully offset 100% of the mortgage interest against income. Something that is no longer possible under personal ownership. You can hold multiple properties under one SPV, including commercial and MUFB, so this can assist with the admin side and tax returns. Lending is available up to 75% LTV.
Limited company buy to let mortgage
Holiday let
Holiday letting has been around for a long time but has seen massive increases in recent years due to the improved availability of mortgage finance and the upturn in staycations. Investors are also seeing that holiday lets can be more lucrative than buy to lets, particularly for the more unusual or interesting properties.
If your holiday let qualifies as a Furnished Holiday Let (FHL) then you can offset all of the mortgage interest however the property is owned. But if the property does not qualify for some reason, or you just prefer to have ownership within an SPV, then limited company holiday let mortgages are available. Lending is available up to 75% LTV.
Limited company holiday let mortgage
Bridging loans
Bridging lenders have always welcomed applications from businesses, limited companies and Special Purpose Vehicles. Of all the lending types, bridge lenders are normally the most flexible. The reason is that they concentrate on assessing and underwriting the asset, your property, to provide sufficient security. They are not really bothered about proving a minimum income or if you have some minor bad credit.
Bridging finance provides a loan for just a short period, 3-36 months usually. They can be useful for many different reasons but are popular with landlords who buy at auction or wish to pick up a bargain property that is current unmortgageable with a mainstream lending product. The type of property is flexible so it is suitable for buy to let, holiday let or commercial purposes. Lending is available up to 75% LTV.
Commercial mortgages
A commercial mortgage could be used to buy some land for redevelopment or perhaps an existing commercial premises that is let out. Lenders are happy to deal with trading companies who wish to buy their own premises or SPV limited companies looking for investment projects.
Not on the High Street!
The high street lenders can’t help every mortgage customer and they prefer the simple, low-risk ones.
If your situation is a bit different or needs a more personalised solution then our brokers can help.
Expert advice, for all situations.
Bridging Loans
The most flexible of secured loans and often misunderstood. Bridge loans can be used in so many different ways and can be arranged super fast.
Large Loans
High net worth mortgage brokers understand complex large loans and unique situations and can source bespoke deals from the right lenders.
Let to Buy
Let to buy combines a buy to let remortgage with a residential mortgage. Allowing you to move house while keeping your current home.
How do you get an SPV?
An SPV is a limited company that is formally registered with Companies House. If you don’t have one already then you need to register a new one for the purposes of property investment. To learn more about this read our guide to setting up an SPV limited company.
In setting up your new company you will also need to appoint shareholders and directors.
Once this is done you can hold as many properties as you like within this SPV.
The mortgage application process
Applying for a limited company mortgage is the same as a personal mortgage, with the added details needed of the company itself.
In legal terms it will be the company that applies for the mortgage and who also owns the property. You (and any other shareholders) will own the company.
For the purposes of the mortgage, a lender will be looking into the directors who must have a good credit profile and also a minimum provable income of around £20,000pa. So although the mortgage application comes from the SPV the mortgage underwriting concentrates on the directors.
As the SPV is a holding company it won’t have any trading figures to supply.
It could even be brand new and just one day old!
The lenders are fine with this, it is how most SPV applications are received. They look towards the directors to justify the financial underwriting, along with the rental income, so there’s no requirements to provide trading accounts etc.
Because it is a new company the lender will also ask all of the directors for a personal guarantee against the mortgage. This provides them with additional security in the event that the project does not work out. Make sure you fully understand the consequences of this and take legal advice as necessary.
Company bank account
At the point that you apply for a mortgage your new company should already have it’s own bank account. You will need to use this account to make the monthly payments and provide details for the direct debit.
Also, the mortgage deposit should be paid by the company, not you. The most common solution for this is to have a directors loan account that you can lend money to, so the company has some funds. Your accountant or broker will be able to explain this further.
Which lenders offer limited company mortgages?
You are unlikely to find very many willing lenders on the high street as the SPV element adds a degree of risk which they would rather avoid.
A lot of the buy to let lenders and holiday let lenders are now happy to accept SPV applications. But some of the more niche or specialist lenders will only work with brokers and so will not accept applications direct from a borrower.
Getting the right advice
We believe that you need (at least) two qualified professionals for investing in property with a limited company.
YOUR ACCOUNTANT
This should be an accountant rather than a bookkeeper and one with experience of property holding via an SPV.
You will need the advice of an experienced accountant to first establish whether investing via a limited company is right for you. Not everyone benefits to the same degree and some people could be worse off without the correct advice.
Their help and guidance will be needed to decide who the directors and the shareholders will be and how best to set this up as an SPV. There are also rules and annual returns that Companies House require, you accountant will be able to do these for you.
YOUR MORTGAGE BROKER
This must be a whole of market independent mortgage broker with experience in arranging limited company mortgages.
Trying to find and apply for this type of mortgage is not going to work without an expert who has access to the specialist lenders needed. There are different lenders operating in buy to let, holiday let and bridging, so having an experienced broker with access to all lenders will give you the maximum choice.
Setting up a limited company mortgage also requires a greater depth of information and an ability to understand company structures and SIC codes.
