Mortgages for Limited Companies
There are many reasons why businesses – and individuals – want to invest in property and mortgages for limited companies help them do so in a way that’s tax efficient. If you are a landlord looking to build up a property portfolio, or if you are the director of a company that derives its income from property, then setting up a Special Purchase Vehicle (SPV) limited company through which to apply for mortgages is a good option to investigate.
An SPV is a limited company set up for the sole purpose of holding property. It can be a more tax-efficient way to purchase property, particularly buy-to-let, while SPVs are also easier to understand and underwrite, meaning that many mortgage lenders consider them as being lower risk than lending to trading limited companies.
What’s the difference between a trading company and an SPV?
When it comes to mortgages for limited companies, lenders view trading companies and SPVs differently. Both types of company are set up and registered with Companies House in the same way.
However, if a trading company wanted to buy a property with a mortgage, the lender would look at the financial strength and performance of the business while assessing its application. It would consider things like the strength of the trading company’s balance sheet, its turnover, profit and outgoings and its projections for growth.
Trading companies are considered a higher risk than SPVs because if their primary business activity began to suffer, due to a downturn, loss of business or other reason, then so would its financial position and it might not be able to make the repayments.
SPVs, on the other hand, are set up as separate entities, purely to hold property, so there is no risk of any other primary activity running into financial difficulties. However, if the SPV is new, or hasn’t yet purchased any properties, it will have no financial records on which a lender can base its decision.
In this case, the director(s) of the SPV would need to give the lender a personal guarantee that if the SPV ceased trading or couldn’t pay its debts, the director(s) would be held legally and personally responsible for repaying the mortgage.
How do mortgages for limited companies work?
Mortgages for limited companies work in a similar way to traditional mortgages. If you set up an SPV, you’ll need to prove to the lender that you can meet your obligations in exactly the same way as you would if you were taking out a standard residential mortgage.
Your lender will examine your employment, income and credit history before deciding whether they want to lend to you.
They won’t really be interested in the trading history of the SPV, they will be more interested in your ability to repay any mortgage they may grant you.
There are a few other differences you may need to bear in mind when applying for a mortgage for limited companies. You will probably be charged a higher arrangement fee, due to the amount of additional paperwork involved for the lender, and your legal expenses may also be higher, as your solicitor will have to check the SPV’s articles of association and make arrangements for your personal guarantee.
As such, working with an experienced mortgage who specialises in arranging mortgages for limited companies is essential, as they will be able to guide you through the process and help you avoid any potential pitfalls.
Can I get a mortgage for limited companies?
If you are the director of a limited company looking to invest in property, there is a wide range of mortgages on offer, both for the residential and buy-to-let markets. If you’re borrowing through an SPV, and you can prove that your income steady and reliable, you may even be able to get access to better interest rates and mortgage deals.
It all depends on your circumstances, but if you can demonstrate to your lender that you can afford the repayments and can manage your finances sensibly, there is no reason why you can’t get a mortgage. As a company director, this means proving your income but also doing things like making sure you’ve met any other outstanding credit or loan payments on time, ensuring all of your regular outgoings – such as utility bills and credit cards – are paid on time, and not taking on any new debt.
Also, the more money you have for a deposit, the better, as this will help to bring down the total amount you need to borrow and might even help you to get a better mortgage interest rate.
Contact us for more information about mortgages for limited companies
My Mortgage Pro is a professional mortgage information service. While we don’t give advice, we aim to provide you with simple, jargon-free, no-nonsense information about mortgages for limited companies to help you make the right choice.
We can also connect you with a specially selected panel of leading mortgage advisers, who are authorised and regulated by the Financial Conduct Authority, who will provide advice tailored to your specific circumstances and help you find the right mortgage for limited companies, fast.
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