Limited Company Mortgages FAQ

Please note this guide is for information purposes only, we are not able to provide any tax advice so speak to qualified adviser regarding your personal circumstances if you have any queries.

What is a Limited Company Mortgage?

This is a mortgage held by a Limited Company. From a legal entity perspective, a mortgage in your personal name is a different legal entity to a mortgage in a limited company. The nature of a limited company means any liability cannot extend further than purely the limited company. Meaning in the event of a bankruptcy or repossession, only assets owned by the limited company are at risk.

However, this is usually not the case with limited company mortgage lenders, many require the director/s of the limited company to sign a “Personal Guarantee” making the “Limited Liability” aspect redundant.

There is not much difference between a mortgage in your personal name and a mortgage in a Limited Company except for things like mortgage eligibility and impacts on your tax.

What is an SPV (Special Purpose Vehicle)?

This is often referred to in the property world as a Limited Company that's designated purpose is for rental activities.

What is a Standard Industrial Classification Code (SIC)?

An SIC code is 5-digit number which illustrates the purpose of that company.

So, for example, if you’re a painter your LTD SIC code would be 43341 as this is the number which reflects the business activities of a painter.

The main three SIC codes which LTD company lenders require you to have are the following. However, note that different lenders have different requirements with SIC codes so confirm to your adviser.

- 68100 Buying and selling of own real estate

- 68209 Other letting and operating of own or leased rental estate

- 68320 Management of real estate on a fee or contract basis

I already own a limited company; can my business buy a mortgaged property?

Well… yes, and no.

From a tax perspective, this can cause complications so consult your tax adviser before deciding whether your trading business purchases a property or a separate SPV.

From a mortgage perspective, lending to a trading company can be complex as lenders would need to underwrite the entire trading company. More complexities mean more risk for lenders. Also, there are not as many lenders in this market segment so trading company mortgages can be more expensive.

Why am I only hearing about Limited Company mortgages now?

The Autumn Budget 2016 announced a four-year period of tapered reduction in interest relief on mortgage payments from 2017. Meaning from 2021, landlords cannot deduct monthly interest costs as tax relief, however, will be given a tax relief up to the basic rate of income tax.

Meaning if you own property in your personal name and your gross annual income (including rental income) exceeds the basic rate of income tax, you could see yourself paying more tax. As always speak to your tax adviser if you have any queries regarding your tax status.

The reason to why limited company lending is becoming more popular is due to more demand. As you are still able to offset your mortgage payments with a Limited Company mortgage, this is becoming a more popular option for landlords. Since 2016, we saw mostly specialist lenders coming into the Limited Company mortgage market but at this point, even a few high street lenders operate in this segment..

The Benefits of Limited Company Mortgages

• Tax Benefits

The first and biggest benefit is the tax advantages as mentioned before. You can still offset 100% of your monthly interest payments against your income, especially beneficial if you are a higher rate taxpayer.

• Borrowing Power

Due to the tax advantages and changes in regulation, you can borrow more on Limited Company buy-to-lets due to lower stress tests.

• Ownership Changes

The nature of a limited company allows directors and shareholders of limited companies to make changes a little bit easier. For example, one shareholder can sell part of their share at a later stage or even purchase a bigger stake from another shareholder. Shareholders under a certain percentage are not usually factored into the underwriting with a mortgage application so they have more flexibility, whereas directors who have the financial responsibility of the company can’t be changed so easily.

The Negatives of Limited Companies

• More administration

Filing end of year tax returns and submitting accounts can be a time-consuming task if you plan to do it yourself. If you plan on paying an accountancy professional, then this can eat into your profit..

• Specialist Lenders

Whilst a few high street lenders operate in this area, a higher number of lenders in LTD mortgages are specialist lenders. This is a smaller segment of the overall market and typically means financing costs are more expensive when compared to high street lenders. As these specialist lenders can typically have more onerous underwriting requirements it can be a little bit more difficult obtaining a mortgage.

What's the best option for me?

As everyone’s individual circumstances are unique, it is difficult to say without speaking to the necessary qualified adviser. We recommend speaking to a tax adviser to ensure you fully understand the tax implications of proceeding with a LTD company mortgage. We also recommend speaking to a qualified mortgage adviser to help ensure you are eligible for a limited company mortgage. It is always worth asking your mortgage adviser to see some non-limited company mortgage rates to see if there’s a significant difference.

Can I transfer my existing properties to a limited company?

Of course, you can! However, we always recommend speaking to a tax adviser before you decide to do this. In simple terms, you would technically be selling your property to the LTD company, meaning potential Capital Gains Tax and Stamp Duty Land Tax may be payable so always speak to your tax adviser to see if it’s worth doing.

Limited Company Mortgages do not have to be complicated and Genius Mortgages are on hand to answer any questions you might have. As always, always take advice from the necessary professional adviser

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YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE