Growing popularity for limited company buy-to-let
At NLA Mortgages, we have seen a significant rise in the number of limited company buy-to-let applications being submitted. Since the beginning of 2019, over 25 per cent of new mortgages each month have been in the name of a Special Purpose Vehicle (SPV) or trading company.
Limited company benefits
This comes as no surprise as there are several benefits to using a corporate structure for running a buy-to-let property business. Many landlords opt to use an SPV as it can be financially advantageous and tax efficient. Since the government announced the phasing out of mortgage interest tax relief by 2020, there are now more reasons to consider the limited company route to reduce tax liabilities.
In terms of buy-to-let mortgage options, limited company products can also provide advantages to landlords as the PRA regulations relating to rent stress tests for personal applications are not applicable (a rent stress test is the calculation that lenders use to determine how much they will lend to you).
It means that the rental calculations can be more achievable for SPVs – typically at 125 per cent at 5 per cent or at the pay rate for 5-year fixed rates – which may allow applicants to borrow more through a limited company.
Wide choice of mortgages
There is growing competition among lenders for limited company buy-to-let – NLA Mortgages has around 30 different lenders on its panel - which means that there are some keenly priced rates available. Historically, limited company mortgages were considerably more expensive than personal name rates, but the gap is closing with some lenders now offering the same rates for both applicant types.
Setting up an SPV is a simple, cheap process which can be completed online within 24 hours via Companies House. Most lenders will lend to newly established SPVs providing they are set up for the sole purpose of letting and managing property. For this reason, it is important that the limited company is registered with the correct SIC code – normally 68100, 68209, 68320 or 68201.
Stamp Duty costs
For existing landlords who are considering transferring their properties to an SPV it is recommended that you seek professional tax advice before proceeding. Moving properties from a personal name to a corporate entity involves a sale and purchase transaction which means that Stamp Duty Land Tax and Capital Gains Tax is payable.
Stamp Duty costs may be a deterrent to large portfolio landlords, but there are circumstances where incorporation relief may be granted by the Inland Revenue if it can be demonstrated that the portfolio is run as a business partnership – again tax advice is recommended in this scenario.
We expect the proportion of buy-to-let mortgages arranged via a limited company will continue to grow over the next 12 months as landlords realise the financial ramifications of the changes to mortgage interest tax relief once it is phased out completely in 2020.
How NLA Mortgages can help
NLA Mortgages provides a free online buy-to-let mortgage search facility for all private landlords enabling you to source from a highly competitive range of buy-to-let mortgage schemes that are researched and updated daily.
Visit NLA Mortgages to view our wide range of limited company products.
You will often have access to schemes that are not available in the general marketplace and all can be viewed directly from the NLA website.
- Best in market products researched daily
- Cashback for NLA Members
- Find schemes that fit your expected rental income
- Free helpdesk for information and support
If you would like to discuss limited company buy-to-let mortgages, please contact the NLA Mortgages support team on 029 2069 5555.