Can I get a BTL mortgage - Limited Company
I think that you need to be thinking long and hard before you go down the route of investing in buy to let through an SPV/limited company. The number of times that I have spoken to accountants and have recommended clients to go and speak to accountants only for the accountant to come back to me and say that it’s not going to work.
I think that if you are looking at going down the limited company route purely for the tax savings then this is probably not the best reason. It is probably one of the reasons but it should not be the only one. As you will see from reading the rest of this article, there are other things that you need to be thinking about before you step into the world of Companies House.
Remember, the mortgage is going to be more expensive. Currently, the best two-year fixed rate on an individual basis is coming out at 2.34% and that’s without an arrangement fee whereas the best-limited company buy to let is coming out 3.25% and has a hefty arrangement fee to go with that. You need to be aware that some of the savings that you will make will be gobbled up by higher interest costs and don’t forget about the accountant's fees which can be the best part of £1,500.
You also need to be aware that any profit that your limited company makes is going to be taxed at 19%. But be aware that if you as an individual want to take a dividend out then that’s going to be charged at standard rates. So if you are a higher rate taxpayer then any dividend is going to be charged out at that level.
It certainly isn’t the magic bullet!
It does however work for some people and if that’s you then keep reading because there are a number of things that you need to be aware of the going to make your life easier when you start looking at a limited company buy to let
One of the most important aspects is to make sure that you get the right code/codes for your business. The Standard Industrial Classification (SIC) are the codes by which your company is classified. Most lenders will insist upon at least one of these. Don’t fall at the first hurdle. This is the first check that the lender is going to make sure that you get it right.
The SIC codes to use are:-
68100 - buying and selling of own real estate - use for flipping property
68201 - letting and operating of own or leased real estate. If you going to have buy to lets and hold them then this is the one for you
68209 - managing of real estate on a fee or contract basis. This is for those where your portfolio has grown large enough that the next step is to start employing people. You can also manage other people’s property
68320 - for real estate agencies - are you packaging deals for a 3rd party?
If you have made a mistake and started your company with the wrong SIC code, you are potentially going to run into problems even if you try and change this. As a minimum, you will need to change the SIC code before you make the application but always best to speak to a broker as each lender has different criteria on this kind of thing.
Only one SPV
You also need to be aware that there are some lenders out there who are only prepared to look at lending on one of your SPV companies. We have fallen foul in the past where clients have come to us with 2 SPV’s holding unencumbered property. No problem in getting a mortgage with the first SPV but the lender would not look at the second company. One director – one SPV it would seem. You also need to be aware that some lenders will not be prepared to agree to lend if there are associated commercial property within the SPV.
There are lenders out there who are still adamant that they will not lend where there are more than 2 shareholders or 2 directors.
SPV and only SPV
We have previously covered off that some lenders don’t like associated commercial property within your SPV. We have also fallen foul where applicants have tried to get a mortgage on a limited company buy to let where there have been employees taking a salary from the limited company. We've also had issues in the past where clients have had lease agreements paid out of rental income. Generally, the lenders just want to see mortgage payments coming out and ancillary costs of running the business. In their eyes, it’s difficult to justify employing someone to run a couple of flats and why would you need a PCP deal on a BMW coming out of the SPV?
Source of deposit
A lot of lenders are going to look at the deposit. Business Bounce Back Loans and other coronavirus related support as a deposit is not going to wash. You’ll also find from a lot of lenders that loans from another company won’t be accepted, however, repayment of a directors loan or dividend payment from another limited company could be considered.
So there we go. Certainly not a bed of roses when it comes to investing with an SPV.
Here’s what I would do if I was considering limited company buy to let
1. Work out what my end goal is
2. Go speak to my accountant
3. Work out my finances including deposit and mortgage
4. Set up the SPV
5. Start looking at property
Hopefully, this will give you some things to chew over when deciding on your next move. Happy to chat all of this through if you want some more meat on the bones