LIMITED COMPANY MORTGAGE
What is it?
LIMITED COMPANY MORTGAGE
What is it?
Limited Company Mortgage
Here’s a detailed overview of what you need to know about the processes involved.
How Do Buy To Let Mortgages Compare To Standard Business Mortgages?
When taking out a mortgage under the limited company, there are two main options. A standard business mortgage is where you are buying the property for the purposes of your company (for example, a store or a warehouse) while a buy to let is where you plan to make money from the property itself by being a landlord or developer.
The latter is known as an SPV. As far as limited company mortgage applications are concerned, the main difference is that the former relies on the performance of a business. So, lenders will want to see balance sheets, projections, and other financial accounts. When the business exists with the sole purpose of making money from properties, lenders prefer to look at the individual directors.
How Do Lenders Determine An SVP’s Ability To Make Payments?
Given that the SVP business relies solely on the properties for financial earnings, lenders will need to check that directors have the means to meet the repayment terms. In many ways, then, it is like taking out a personal mortgage, although the arrangement fees will be higher. So, you will need to prove your income, credit score, and other relevant finances in the same way as a personal mortgage.
Another issues to consider revolves around the deposit. A larger down payment naturally gives you greater strength when entering the market as well as dealing with lenders due to the LTV ratios. If you own another company, an inter-company loan is the best way to get those funds into your account. However, alternative ways are available.
So, Can My New Business Get A Limited Company Mortgage?
In theory, yes. There is nothing to stop you from starting a company today and taking out a limited company buy to let mortgage right away. You are essentially taking out a mortgage in the same way that you would complete a personal mortgage, only there will be more complex paperwork to complete.
This can delay the process a little as the lender will want to check your full financial background while also completing the relevant business documents. However, the company itself isn’t particularly relevant as far as the application is concerned. So, you do not need to supply financial backgrounds for the business itself – unless the loan is for direct business premises.
What Happens If The Company Fails?
Lenders won’t hand out limited company mortgages for the sake of it, and will use strict regulations to protect their finances. Businesses can fail, which is why lenders will get directors to provide financial guarantees to confirm that they will personally pay the money back should the venture crash and burn – this is irrespective of whether the business is an SPV or not.
Essentially, then, the burden of the mortgage is on your shoulders. The only real difference from taking out the personal mortgage is that this route can provide a better tax situation. Before taking out your first limited company mortgage, though, it’s worth speaking to an adviser about the finer details.
Contact Active Mortgage about a limited company mortgage. We are mortgage advisers that specialise in helping company directors and self employed.
These articles are for information only and no advice should be conferred from the content within. Please seek independent financial advice prior to taking any action.
The financial conduct authority does not regulated some forms of commercial loans or mortgages.