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Yes, trading limited companies can have BTL mortgages

By Paul Brett, Managing Director, Intermediaries, Landbay

Buy To Let lending has changed in recent years due to Government intervention, new rules and regulations, increased stamp duty and different clarification of a landlord.

There are two types of landlords, portfolio and non-portfolio. Portfolio landlords have four or more mortgaged properties and Landbay are seeing more of them take up limited company lending. However, it isn’t exclusive to them as it’s all about the advice from a client accountant.

Setting up as a limited company for BTL purposes is usually registered as a Special Purpose Vehicle and will have a SIC code (‘standard industrial classification’ of economic activities). This indicates the company specialises in property.

Alternatively, properties can be held within trading limited companies but this is less common and only a handful of lenders operate in this space.

Trading limited companies can be any sort of small to medium business such as:

  • Hairdressers

  • Doctors surgery

  • IFA

  • Electricians

and they can use their firm to buy property.

Owners of trading limited companies should seek advice from a tax accountant before they do anything. The accountant may suggest that rather than taking money out of a company and incurring taxation, an alternative option is to invest in property. Surplus profits from within the company could be used as a deposit on a property along with a BTL mortgage to finance the remainder.

If a trading limited company already owns a property and wants to raise capital it could go to a bank for a business loan. But the disadvantage is the bank may require a debenture over the company which can be very restrictive. This is a loan agreement that acts as security for the lender over the borrower’s assets, including the property, in case of default. The business loan will be for a short term, typically five years, and it will be capital and repayment.

An alternative option is to take out a BTL mortgage on the property which potentially offers more flexibility and preferential terms than a business loan. The mortgage term can be up to 30 years on an interest-only basis, making monthly payments substantially lower.

From Landbay’s perspective they will underwrite applications from trading limited companies in the same way as an SPV. For them, lending to trading limited companies follows the remit of Landbay’s existing SPV limited company criteria.

Personal guarantees are taken from the directors and substantial shareholders who hold more than 25% of the business – this can be up to four – and Landbay have first charge on the property.

Another option which fits very nicely with Landbay’s flexible offering is that they will consider lending to layered limited companies. This is where a trading limited company, perhaps a property development firm, owns a SPV subsidiary. Landbay could potentially lend to either of the companies as long as they have the same ultimate beneficial owners.

So whether the accountant’s advice is to move the money or asset of out of the trading limited company into the subsidiary or retain it, Landbay can consider lending in both scenarios.

Lending to trading limited companies can be complex which is why very few lenders will consider this type of lending. It is specialist but Landbay has highly experienced underwriters and BDMs who understand how mortgages work for company structures.

Landbay would advise that brokers always ask their client’s to seek professional tax advice because these decisions are crucial in how they manage their finances. As long as clients understand what they are doing, then they can work out the best mortgage for them.

Find out more about BTL