Mortgages criteria for both Limited Company or Personal Name options.
Before I delve into the details can I start with the age old adage: “there’s always two sides to a story”, whilst Limited Company buy to lets are trendy, particularly on purchases, it may not be right everyone.
The other major fact I need to stress is I’m basing this article on my findings as a professional Mortgage Broker. I’m NOT an expert on tax and would always defer to professional Tax Advisor before entering into any buy to let transactions.
Due to my slant in knowledge, this article may not be appropriate for properties that are and will remain unencumbered i.e. “mortgage free”.
Advantages of Buy to Lets in personal names:
- There are more mainstream lenders so the rates are normally more competitive.
- There are normally fewer checks to be done so the lender arrangement fees tend to be less.
- Rental income is only subject to income tax whereas a Company has Corporation Tax ahead of Dividends and Directors Salary.
- The process is likely to be easier to follow and anticipate.
- The inclusion of a non or lower tax ratepayer could reduce the tax bill.
- There are a greater number of high loan-to-value property.
- Disadvantages of Buy to Lets in personal names:
- Offsetting the interest costs are to be a thing of the past. It’s currently in a transition period which is tapering down the relief.
- The minimum age is at least 18 years and its higher with a large proportion of lenders.
Advantages of Limited Company Buy to Lets:
- Interest costs are viewed as expenses.
- The rental calculation is generally more favourable to higher and additional rate taxpayers so you can borrow more.
- Succession planning should be easier as directors and shareholders can be adjusted with the lender’s permission
- Children can potentially be shareholders.
- Many Ex Pat mortgage products are only open to limited companies.
Disadvantage of Limited Company Buy to Lets:
- Not much support on the high street from lenders.
- Smaller choice of conveyancers which could increase the cost. The lenders might also direct you to a limited panel.
- Tighter timeframe rules around the title registration.
- If you or a close relative has lived in the property then the options are limited.
- The mortgage lenders might look for a greater level of landlord experience.
- Other points:
- If the property moves from a personal name to a limited company or visa Versa, then legal representation on both sides will be needed.
- Whilst technically a Company does not have mortality concerns the maximum mortgage term offered by lenders are likely to be the same as those on a personal name basis.
- Not all lenders that offer limited company mortgages extend their remit to include trading businesses that undertake other types of business activities.
If you’re looking at buying a But to Let Property and are asking yourself about Limited Company or Personal Name mortgage options why not talk to the experts now and find out how we can help.