This week Mortgage & Protection Adviser and Buy To Let Specialist Edward Peters discusses Limited Company BTL Mortgages.
What are the current trends around BTL mortgages?
These may have been around for a few years now but throughout 2021 I’ve noticed two distinct trends. The proportion of BTL mortgages written in limited company name has been increasing for years, but the rate of increase has picked up. Encouragingly the other trend is that rates have fallen steadily in 2021. The presence of several new providers has increased competition, including several who bring low product fees and low or no valuation fees onto our sourcing systems. We always look at the total cost of a mortgage rather than just the interest payable, and for cheaper properties the absence of these other costs can make a significant difference.
What are the benefits to buying in a limited company name?
Of course the main reason for buying in a limited company name is the potential tax saving, and most enquiries will be from higher rate tax payers. Clients’ tax advisers will often have suggested this, usually unaware that interest rates are still higher than BTL mortgages in personal name. The difference is broadly around 1% give or take 0.5% and I will often quantify this difference more precisely where a client is considering a limited company approach. If the tax adviser then quantifies a tax saving the client will be able to decide easily which avenue to take.
Can I use my own solicitor?
It’s worth noting the conveyancing options and the number of firms on lenders’ panels. Clients buying in limited company name will often be portfolio landlords, and are likely to have a regular solicitor they prefer to use. Some lenders have the same vast panel of firms that is no different to buying in personal name. Many though have smaller panels which are unlikely to feature the client’s preference. In one case there is only a single firm on the panel, and we’re not talking about free conveyancing here, so I always like to cover this area early and establish whether it should be another sourcing consideration.
Does it limit the lenders available?
Sourcing a lender when buying in limited company name adds yet more considerations to what is already a complex process, with lenders as ever having their own take on various criteria. Some may need shareholders and directors to mirror each other, other may need directors to account for a minimum percentage of the shareholding. Occasionally clients may layer companies which is generally not accepted by lenders, but as ever there are exceptions and we can usually accommodate this. BTL sourcing is never far from a proverbial Venn diagram, and buying in a limited company invariably adds a circle or two.
Anything else property landlords need to be aware of?
The SIC codes assigned to a company are most important and this is where lenders do have a common approach, needing it to be a special purpose vehicle rather than a trading company. There are so few exceptions that I will strongly recommend that a company is set up with the preferred codes so as not to compromise lender options excessively. One useful trick is to check the Companies House website whilst having an initial call with a client. This will yield all sorts of useful information, and give me a good idea of what options will follow. I recall one instance where the limited company had “Property Developers” in the company name and despite it having the correct letting SIC codes, we avoided one mainstream lender that refuses to lend to property developers. It’s a criteria minefield out there!
For further advice contact
Edward Peters – Mortgage & Protection Adviser
Edward@mortgage1st.co.uk – 07443 520537