Specialist lenders have the expertise to help navigate the market for limited companies considering buy-to-let mortgages, and any challenges faced.
- Choosing the right lender. Of itself, setting up a limited company is a fairly straightforward process, but sourcing the finance can be more complex than usual. As a specialist product is required there are fewer options on the market, but that shouldn’t be an issue if you find a lender with products designed specifically for limited companies. Specialist lenders also have the expertise to help navigate the market and any challenges faced.
- Special Purpose Vehicle vs Trading Business. From a lender’s perspective, applications from SPVs are quicker to underwrite than applications from trading limited companies, simply because there are more options available for the former. An SPV limited company is a non-trading company that exists solely for buying, selling and letting property. The alternative is a trading limited company, which is a legal structure set up to run a business.
- SIC codes. SIC codes come into play only when a company is submitting its first set of accounts, but it’s important to know which ones are required. They effectively tell Companies House what a business is going to do from a tax perspective and let lenders know what activity they’ll undertake. There are only two required for buy-to-let: 68100, for buying and selling of own real estate; and 68209, for other letting and operating of own or leased real estate – in other words, for buying and holding property and renting it out.
- Data can be public. Setting up a limited company creates an added layer of responsibility for landlords. Companies have running costs, incur corporation tax and potentially business rates, all of which require accounts to beformally filed and directors to be appointed. Returns must be filed on time and it should be remembered that, unless they are classified as a small business, all data is on public record so can be viewed by anyone.
- Independent tax advice. The limited company route is not a one-size-fits-all approach and landlords should always seek independent tax advice before making decisions. In many instances this option is financially beneficial, but there could be circumstances where it is not. Landlords with existing properties face a major financial hurdle if they want to transfer these into a limited company, so it may be a better option for new properties.
Paul Clampin is chief lending officer at Landbay