One of the most fundamental shifts in the buy to let market, is taxation. Buy to let landlords are often caught between what is easiest, and what is more cost effective. When it comes to a buy to let, setting up a limited company mortgage option may just shave off a few thousand pounds in taxes. The Saffron Building Society recently to opted to set up a limited company mortgage buy-to-let product that allows intermediaries to apply for better rates and conditions for their properties. With the ever-changing tax laws that affect landlords, this option of going for a limited company off the bat may prove to be a little more cost-effective. At Pro Buy To Let, we equip our clients with the best research to make an informed decision.
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Mortgage For Limited Company
A limited company mortgage is a simple process when dealing with the right intermediary or mortgage broker. This is because the market is currently flooded with brokers who may advise their clients on the fastest application process, without bearing in mind that their customers might be on the losing end of the deal. By dealing with a reputable intermediary or mortgage broker, potential investors will know what their options are, as well as the long-term ramifications of their decisions. One of the biggest considerations is the price point a limited company can expect. Just recently, limited companies and selected two-year fixed rate and tracker mortgages received a substantial rate cut through a major mortgage financier. The two-year products enjoyed a 0.25% cut and limited companies enjoyed a slightly higher 0.35% cut.
These types of offers are initiated in order to allow landlords some breathing room in a tight economy where stimulation is sorely needed. While property prices are fairly stable, landlords seem to be reluctant to take on properties as pending legislation and tax proposals make it hard to enjoy a healthy profit from their properties. The difference between those who happen to make a profit and those who struggle to break even on their properties, is dealing with an expert from the start. UK properties are in high demand and knowing when, where, and how to enter the market will make a whole lot of difference. A limited company mortgage may even produce some positive results on the bottom line.
Limited Company Director Mortgage
One of the advantages of setting up a limited company is that the limited company director mortgage tends to offer far more than those for the individual. This is because, as a separate entity, setting up a limited company allows directors to show their net profit a bit easier than trying to prove income as an individual. While securing a loan as a company director might be slightly more difficult than for an individual who has a nine-to-five job, it’s worth the additional paperwork.
In order to get the best deal, the company director will need to find a financier who is willing to take net profit into consideration when extending the loan. This is because business owners are reluctant to take more than they need from the business due to personal taxation. They would much rather keep the surplus in the business for a rainy day or reinvest the profits back into the business. However, if they need to draw higher and the net profit allows it, financiers should take this into account. Suddenly, a £240,000 loan can be bumped up to £400,000. The caveat, however, is that the bumped up facility might cost the bank more exposure than they’re comfortable with, and that could result in a request for a higher down-payment or higher interest rate.
Limited Company Mortgage Criteria
It’s good to get the ball rolling as soon as possible if the decision is to go the limited company mortgage route, as there a quite a few boxes to tick before submitting any applications to the banks. First of all, there is the possibility that the bank will require some form of down–payment by means of savings, investments, gifts, etc so as not to put additional pressure on the company finances. This means that the down payment can’t be from a loan. Another consideration is that some banks may require the company to be in operation for at least two years before extending finance, which places quite a damper on those who want to pursue this avenue for the first time.
While not impossible, it is a bit more difficult. Other documents that may be requested are the signed offer to purchase, company documents, and also information on all the directors. It’s worth mentioning that the directors will need to be in sound financial standing in order for a successful application to take place.
While it might take a bit more time and effort to set up a limited company for that next buy to let, the effort tends to pay off in the long run. Contact us at Pro Buy To let to learn more!