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Balanced with integrity, experience & trust
Limited Company BTL
Here you will find 'our thoughts & considerations' on Limited Company borrowing and the main things to be aware of when considering this type of property investment structure. The information in this section is NOT mortgage advice, but are the main conversation points we often have with clients of Balanced Financial Services.
We appreciate there is a lot to consider and think about, so feel free to call us for a no pressure conversation about your options and what considerations will be relevant to you
Initial Considerations
Limited Companies can be varied in their set-up and structure and lenders will want to fully understand who the beneficial owners are, who are the shareholders, and who are the directors. They will also want to understand how the company is controlled and has the company been trading previously? Some of the common Limited Company structure types are shown below:
S.P.V
Special Purpose Vehicle, this is the most common arrangement, and this is where a company is set up specifically for letting Buy to Let properties.
* A mortgage can be arranged from the day the
company is registered *
Previously Trading
A company that traded in a different industry, but has been dormant in its original sector, now intended for the use of holding Buy to Lets.
Currently Trading in another sector
A company currently & actively trading in a different industry/sector.
Layered Ltd Company
A company where shareholders are other companies, or a combination of people and other companies.
How structure will affect lending options
Unfortunately, every lender who operates in the Limited Company arena will have different views on what structures are acceptable to them and what are not. The most commonly accepted structure is an SPV. Most lenders who lend to Limited Companies, will lend to an SPV, there are less lenders available to companies which have previously traded in a different industry, and less still to companies which are layered. There are very few lenders who will lend on a ‘Buy to Let’ basis to a Trading Limited Company, however there are lenders that will consider this. (Lending to Trading Limited Companies can be obtained through commercial mortgages – please see our ‘mortgage types’ page for further information).
We suggest that wherever possible you engage your mortgage broker and accountant / tax adviser to ensure that your company will achieve what you want it to, whilst ensuring access to the type of lending you require.
We have had many Limited Company clients advise us that they wished they spoke to us before they set up the company so they could have made an informed decision on the structure, considering their tax adviser & mortgage adviser considerations.
How We 'Source a mortgage'
We are often asked how we arrive at a reccomendation. We have below a simplified version of the process we go through to get to a reccomendation.
Start with 40+ Ltd Co Lenders
Structure ok?
Applicant circumstances ok?
Personal Income ok?
Deposit ok?
Property ok?
Cheapest
Recommend
The sourcing Process...
As you can see, we take out the lenders who will not consider your chosen structure, leaving us with fewer lenders, then we remove lenders who will not be happy with your personal circumstances (this could be personal income, credit history and many other applicant criteria points). Next, we remove lenders who will not accept you specified deposit source (see below for further information on deposit sources). Next, we look at the property to ensure it meets lender criteria, and take out any lenders who will not accept the property.
Once we have a ‘short list’ of lenders whose basic criteria the case meets, we then look at the most cost effective based on your own preferences. This may be cheapest rate, lowest fees, or our preference is to look at the whole cost (rate & fees) over the initial term of the deal. Finally, we will make a recommendation based on your cost preferences and utilising a lender whose criteria your case meets (always subject to lender underwriting & valuation).
Please be aware that the property itself is an imperative aspect. Please refer to the property matters page in this hub for further information.
Additional Legal / Conveyancing Costs
Lenders vary in their conveyancing requirements, in addition to a potential requirement for I.L.A. there are other considerations depending on the lender chosen, see below:
Some lenders insist on using their own legal conveyancing teams in addition to yours, this means that you pay your solicitor, and theirs.
Others will allow dual representation, which is where one solicitor acts on behalf of the lender, and your company. Where this is possible, many lenders have a panel of solicitors they have deemed acceptable to act on behalf of the lender and you will be required to choose one of these conveyancing firms if you take this option.
Taxation
We wholeheartedly believe that you should seek appropriate tax advice to determine if arranging your Buy to Let investments into a Limited Company is a suitable route for you and your personal circumstances. They will also be able to talk you through your obligations like company accounts, and personal tax returns.
It is also important to note that tax rules can and do change and lenders have started considering the effect of landlord taxation in their underwriting processes.
We have experienced working with accountants who have frighteningly little understanding of Buy to Let, and Charlie herself was misinformed regarding Buy to Let taxation, and mortgage options (yes, an accountant tried to provide mortgage advice!) including advising that a Buy to Let mortgage is simply not available to a newly trading SPV and that 2 years accounts would have to be provided before a mortgage application could be considered. This accountant was woefully incorrect, and this is why it is so important to find suitably experienced advisers, in taxation, mortgages and conveyancing.
As a result, we set out to find an accountant who really knows their stuff, we found one, and we can make an introduction if required. *We do not receive a referral fee for this introduction.
Ownership & Directors
Often landlords approach us with plans to set up companies with multiple shareholders and directors, some UK based, some not. Others adding their children (both young and grown up) to shareholdings. When a lender looks to lend to a Limited Company they must establish the beneficial ownership of the business, the shareholdings, and who holds persons with significant control.
Many lenders work on the basis that anyone with a shareholding of X% is, in their opinion a controlling shareholder, and on this basis the mortgage underwriting must be based on these shareholders capacity to manage and maintain the mortgage.
Most lenders have predefined limits regarding:
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Maximum number of shareholders & directors
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Minimum & maximum age of shareholders & directors
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Whether children can be added as shareholders
Layered company structures are becoming more common, and more lenders are venturing to this space, however there is still a limited number of lenders available, and some landlords are not aware that personal guarantees are still required from the directors/shareholders of the parent company. Layered Limit company lending can be a complex area and we suggest you have a chat with one of our experienced & friendly brokers to discuss your individual circumstances.
Deposit Source
There is a lot of flexibility surrounding deposit sources for investing into a Limited company. The most common are:
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Directors Loan (cash injection to the business directly from directors).
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Equity (where the director owns equity in the property personally and transfers this equity to the company).
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Gifted deposit - From family member to a director, who then places into the company by way of a directors loan.
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Intercompany loan – A loan from one of the directors’ companies, to another.
There are other ways to fund your deposit, but remember all lenders have different views on the deposit sources that are acceptable to them. It is also worth bearing in mind that lenders and brokers are obliged to establish where the funds came from and evidence of the source of funds will always be required.
SIC Codes (Standard Industrial Classification)
Lender requirements for SIC Codes vary greatly. Some Limited Company lenders will lend to a company with any SIC codes, but others are much more prescriptive, even going so far as checking that there were not previous SIC codes. The most common for an SPV are:
68100 - Buying and selling of own real estate.
68209 - Other letting and operating of own or leased real estate.
68320 - Management of real estate on a fee or contract basis.
We do suggest that you discuss your companies SIC codes with your mortgage broker before purchasing properties so that you can maximise the lenders that will be available to you.
Personal Guarantees and I.L.A (Independent Legal Advice)
Many landlords are under the misconception, that if they arrange their Buy to Let business within a Limited Company, the liability to mortgage lenders is restricted within the company. This is very rarely the case. Almost all lenders who lend on Buy to Lets within a Limited Company require a director’s personal guarantee to be provided for the debt, and they will also often insist that any directors/shareholders responsible for this debt receive Independent Legal Advice as to the consequences of this guarantee. Where a lender insists on this Independent Legal Advice, they will also require evidence that the guarantors have received this advice, usually by way of a document signed by the legal adviser who provided the advice.
There are variations between lenders, many having their own form which must be signed by the solicitor providing the advice. Some lenders require that this advice is on a face-to-face basis, others are happy if this is provided by remote methods like Zoom.
Due to the nature of the Independent Legal Advice, this must be provided on an individual basis (it cannot usually be 2 x directors in the same meeting) and as a result it can become a costly exercise. We have access to a solicitor who can provide this advice at a fixed fee of *£165+VAT per I.L.A meeting. This is a remote provision so will not be suitable for all lenders. Please do contact us for more information.
*Balanced Financial Services will receive a small introduction fee of £15.00 for each referral to this service.
Buildings Insurance
Some landlords do not realise that when a property is purchased within a Limited Company, the property is owned by that company (not the directors/shareholder directly). As it is the company that owns the property, the insurance for the property should also be in the name of the company, which is the entity which has the insurable interest. This attracts higher rates with some insurers, and we recommend that you speak to a suitably qualified insurance broker to ensure the right insurances are in place. *Please click here for a quote from our recommended independent insurance broker.
*Balanced Financial Services will receive a commission for each referral to this service.
Other Considerations
There is lots to consider when setting up or purchasing into a Limited Company, we have added some more considerations below:
Lender Variations
Lenders vary greatly in so many aspects in addition to those noted above. One example would be that there is a lender who will only allow one Ltd Company mortgage to them per client, so as some applicants do, you may have more than one SPV (maybe for different investing groups) this lender will not consider an application from any of your other companies, if one of your companies is mortgaged to them.
Re-mortgaging / Rate Switching
Re-mortgaging to switch rates when a fixed or ‘initial deal’ rate has ended within a Limited Company can be a costly business due to the legal costs and higher set up fees some lenders apply. Some lenders offer very good ‘product switch’ deals, but many still do not and your rate & options after the initial deal should always be a consideration when arranging your mortgage.