Table of Contents
1. Introduction
2. What is a Limited Company Mortgage?
3. How Do Limited Company Mortgages Differ From Personal Mortgages?
4. Common Uses for Limited Company Mortgages
5. What Your Company Needs to Share to Apply
6. Benefits and Challenges of Limited Company Mortgages
Limited companies are becoming a popular choice for purchasing property, especially among landlords and property investors. A limited company mortgage is a specialist product tailored for people looking to buy or refinance properties in a tax-efficient manner. Whether you’re building a property portfolio or seeking tax advantages, understanding how these mortgages work can help you make informed decisions.
In this guide, we’ll explore the ins and outs of Ltd Company mortgages, covering what they are, how they differ from personal mortgages, and how to apply. We’ll also highlight the common uses for these products and how professional brokers like EHF Mortgages can guide you through the process.
What is a Limited Company Mortgage?
A limited company mortgage is a loan specifically designed for property purchases made through a limited company. This is common among landlords and investors who buy residential or commercial properties using a company structure rather than their personal name.
Who Can Apply for a Limited Company Mortgage?
• Companies registered as Limited Liability Companies (Ltd) in the UK.
• Special Purpose Vehicles (SPVs), which are companies set up solely for buying, letting, or managing property.
Unlike personal mortgages, limited company mortgages consider the financial profile of the company, as well as the directors and shareholders, when assessing affordability.
Why Choose a Limited Company Mortgage?
• Tax Efficiency: Using a limited company can provide tax advantages, such as paying corporation tax instead of income tax on rental profits.
• Portfolio Building: A company structure is often preferred for managing multiple properties, as it streamlines accounting and financial management.
• Borrow More: Through a limited company mortgage, landlords are able to maximise the amount they can borrow through preferential assessment of rental income.
How Do Limited Company Mortgages Differ From Personal Mortgages?
Ownership and Responsibility
• Personal Mortgages: The property is owned by an individual, and the mortgage is based on their income and creditworthiness.
• Limited Company Mortgages: The property is owned by the company, and the mortgage is assessed based on the company’s financial health and purpose.
• Personal Guarantee: As the borrowing is arranged through the limited company, most lenders will require the shareholders to personally guarantee the mortgage, and will be liable if the company doesn’t pay the mortgage costs.
Interest Rates
• Limited company mortgages often have slightly higher interest rates than personal mortgages, reflecting the perceived risk to lenders.
Affordability Assessment
• For personal mortgages, affordability is based on personal income and outgoings.
• For limited company mortgages, lenders review:
• The company’s financial accounts.
• Rental income from the property.
• Any other Buy to Let properties held in the background
Tax Implications
• Rental income earned through a limited company is subject to corporation tax, currently lower than higher-rate income tax. However, withdrawing profits as dividends may incur additional taxes.
Common Uses for Limited Company Mortgages
Buy-to-Let Investments
Limited company mortgages are commonly used by landlords seeking to expand their portfolios. Properties purchased through an SPV allow landlords to separate their personal finances from their business activities.
Portfolio Refinancing
Investors with multiple properties often use limited company mortgages to refinance and release equity for new purchases.
Commercial Properties
These mortgages are also used for purchasing commercial properties such as office spaces, retail units, or mixed-use buildings.
Inheritance Planning
Purchasing property through a limited company can be part of a long-term inheritance strategy, allowing assets to be passed on with greater tax efficiency.
What Your Company Needs to Share to Apply
Applying for a limited company mortgage requires providing detailed information about your company’s structure and finances. Here’s what lenders typically need:
1. Company Registration Details
• Proof that the company is registered with Companies House.
• Confirmation of the company type (e.g., SPV) and SIC Code
2. Financial Accounts
• Recent financial statements, including profit and loss accounts.
• Tax returns for the company, if applicable.
3. Rental Income Projections
• Evidence of expected rental income for the property, often verified through a letting agent or property valuation.
4. Directors and Shareholders
• Personal guarantees may be required from directors or major shareholders.
• Personal credit checks to ensure financial responsibility.
5. Property Details
• A detailed property valuation and expected rental yield.
• Confirmation of the property’s use (residential, commercial, or mixed).
Benefits and Challenges of Limited Company Mortgages
Benefits
• Tax Efficiency: Profits are taxed at the corporation tax rate, which is generally lower than income tax rates for high earners.
• Liability Protection: A limited company structure limits personal liability, protecting directors’ personal assets.
• Professional Image: Operating through a company can enhance your credibility as a landlord or investor.
Challenges
• Higher Costs: Interest rates and setup fees for limited company mortgages are typically higher than personal mortgages.
• Complex Administration: Managing a limited company requires maintaining accurate records, filing annual accounts, and adhering to corporate regulations.
• Personal Guarantees: Many lenders require directors to provide personal guarantees, which can expose personal assets if the company defaults.
How EHF Mortgages Can Help
Navigating the world of Ltd Company Mortgages can be complex, but the right broker can make all the difference. At EHF Mortgages, we specialise in helping businesses secure the best mortgage deals tailored to their unique circumstances.
Our Expertise
1. Whole-of-Market Access:
• We work with a wide range of lenders, including those offering specialist limited company mortgage products.
2. Tailored Advice:
• Whether you’re buying your first buy-to-let property or managing a large portfolio, we provide solutions that align with your goals.
3. Support with Applications:
• From gathering financial documents to liaising with lenders, we handle the legwork, so you can focus on growing your business.
Conclusion and Next Steps
Limited company mortgages offer a unique opportunity for landlords and investors to build their portfolios while benefiting from potential tax efficiencies. However, they come with specific requirements and considerations that require expert guidance.
Ready to explore your options? Contact EHF Mortgages today to book a consultation. Let us help you find the best mortgage solution for your company and take the next step toward achieving your property investment goals.
