Debunking the Myths: Understanding Limited Company Buy to Let Mortgages
Limited Company buy to let mortgages are gaining traction among landlords as they tap into a myriad of benefits unique to this investment structure. Despite their growing popularity, multiple misconceptions persist, casting shadows over the decision-making process for potential investors. In this article, I aim to set the record straight by exploring the six most common myths associated with Limited Company buy to let mortgages.
1. SPVs and Limited Companies: Are They Really Different?
One prevalent misconception is that Special Purpose Vehicles (SPVs) differ from Limited Companies. In fact, they are essentially the same entity in the realm of property investment. An SPV is a Limited Company established specifically for the purpose of buying and renting properties. Upon registering your Limited Company with Companies House, you must select the appropriate Standard Industrial Classification (SIC) code, typically either 68209 or 68100, signifying your involvement in property leasing. This straightforward classification can help streamline your tax obligations, making it an intriguing option for many landlords.
Understanding the differences between SPVs and Limited Companies.
2. Do You Need Yearly Accounts to Secure Funding?
Another myth I often encounter is the belief that a Limited Company must present several years of accounts to obtain a buy to let mortgage. Contrary to this assumption, you can set up an SPV Limited Company and start borrowing almost immediately. Most mortgage lenders are open to assessing your application similarly to the traditional individual buy to let mortgage applications, even taking unsupported personal guarantees from the company’s directors and shareholders into account. This means that even new companies can find avenues for property investment without the burdensome wait.
3. Are Limited Company Mortgages Always Pricey?
A common assumption is that Limited Company buy to let mortgages are more expensive than personal alternatives. However, as the demand for these mortgages has surged, lenders have increased their product ranges. Many now offer comparable rates for both individuals and Limited Companies, fostering a competitive environment that benefits investors. Yet, the apparent cost-effectiveness of each option greatly depends on your specific tax situation. Seeking professional tax advice is essential, particularly when navigating the intricate world of property investment. For instance, with the help of a mortgage broker, you can compare rates and overall mortgage costs to align with your tax advisor’s guidance, leading to informed decisions.
Finding the best mortgage deals that suit you.
4. The Stamp Duty Surcharge: My Limited Company Is Exempt, Right?
Many investors assume that the stamp duty surcharge does not apply to their Limited Company’s first buy to let purchase. Sadly, this is incorrect. If you choose to acquire property through a corporate structure like an SPV Limited Company, the 5% surcharge applies regardless of your personal position in property ownership. It’s crucial to consider these additional costs in your financial planning; you can even utilize a stamp duty calculator to estimate your liabilities for clarity.
5. Bad Credit: Is It Irrelevant If I Borrow via a Limited Company?
There’s also the misconception that poor personal credit history won’t affect mortgage applications if done through a Limited Company. Unfortunately, lenders will still scrutinize the credit history of the company’s directors and shareholders, as these individuals provide personal guarantees. Your credit profile will play a significant role in determining the approval of your application. So, even if you’re excited to start investing via a Limited Company, be prepared for potential hurdles if your credit isn’t in good standing.
Understanding the impacts of credit ratings on mortgage lending.
6. Transferring Property to a Limited Company: Simplified Process? Think Again
The terminology surrounding the transfer of personally owned buy to let properties into a Limited Company can be misleading. This process is not merely a matter of transfer but rather an actual sale and purchase transaction, commonly referred to as incorporation. The Limited Company must purchase the property at market value, which comes with its own costs, including stamp duty (and the associated surcharge) and potential capital gains tax implications. As such, it is essential to seek expert tax advice to ensure that the incorporation process aligns with your long-term investment strategy.
If you are interested in exploring how to potentially save money when making this transition, additional insights can be found here.
How Can We Help With Your Limited Company Buy to Let Investment?
Whether you are just embarking on your journey into the world of buy to let investing or looking to incorporate an existing property portfolio into a Limited Company structure, there are experts out there ready to assist. To discuss your next Limited Company buy to let investment, don’t hesitate to contact our team of brokers at 0345 345 6788, or submit an enquiry here. By making well-informed decisions, you can unlock the potential of your property investments.
To summarize, the landscape of Limited Company buy to let mortgages is rife with misconceptions that could hinder your investment opportunities. Understanding the reality behind these myths will empower you to take confident steps towards maximizing your property portfolio’s potential.
By staying informed and seeking out the right support, every landlord can navigate these changing waters successfully.
