Limited Company Mortgages
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Limited company mortgages explained:
A limited company mortgage is a type of mortgage specifically designed for properties purchased through a limited company, rather than in an individual’s name. This is common for property investors, particularly those in the buy-to-let market, who choose to buy, hold, and manage properties through a limited company structure for tax efficiency and other benefits.
Who Can Apply:
- Typically, these mortgages are for special purpose vehicles (SPVs), which are companies set up solely for buying and renting out properties.
- The directors or shareholders of the company usually provide personal guarantees, which means they are personally liable if the company cannot meet its mortgage payments.
Interest Rates and Terms:
- Interest rates for limited company mortgages are often higher than those for individual buy-to-let mortgages. This is because lenders view lending to a company as riskier than lending to an individual.
- The mortgage terms and conditions are similar to those of standard buy-to-let mortgages, including repayment terms, interest-only options, and the ability to remortgage.
Tax Efficiency:
- One of the main reasons investors use limited companies is to benefit from potential tax efficiencies. Profits within a company are subject to corporation tax, which is often lower than the higher personal income tax rates.
- Companies can also offset mortgage interest against rental income more effectively, which is less advantageous for individual landlords due to changes in tax laws.
Criteria and Eligibility:
- Lenders typically assess the mortgage application based on the company’s financial status, the directors’ personal financial situations, and the rental income potential of the property.
- The company usually needs to be an SPV, though some lenders may offer products to trading companies with property as part of their business activities.
- Pros and Cons of a Limited Mortgage:
- Pros: Potential tax benefits, the ability to retain profits within the company for reinvestment, and a clearer separation between personal and business finances.
- Cons: Higher interest rates, additional administrative costs, and the need to comply with more complex legal and financial regulations.
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