Are Limited Company Buy to Let Mortgages worth it?

by Readers Question

14:23 PM, 26th June 2017
About A year ago

Are Limited Company Buy to Let Mortgages worth it?

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Are Limited Company Buy to Let Mortgages worth it?

Before I start, please don’t confuse me with the other more knowledgeable and financially astute Neil Patterson on this forum!

I can see the merits of holding property in a limited company given the changes to the tax treatment of mortgage interest. However, I’m hitting a problem in practice. I’ve recently remortgaged a property held in my own name for 2 years fixed at 1.69% with a 65% LTV and £1,800 fee. A great deal, no doubt about that. However, I’ve recently agreed to buy a property in a company (which I set up for the purpose) and approached my IFA to get finance. I’d read the rates were more or less similar, but the best he has come back with is a two year fixed at 3.6% with 68% LTV and fees of £3,445. And that is with a personal guarantee, so I don’t even get the other benefits of limited liability (not that I need them).

It doesn’t take a genius to realise that saving 20% tax on a rate of 3.6% is much worse than paying 1.69% with less tax relief. Let alone the higher fees involved.

Is anyone else experiencing this problem and if so have they found a way to make it work? Or do I just need a new IFA?!

Any insights appreciated.

Neil



Comments

Neil Patterson

14:36 PM, 26th June 2017
About A year ago

Hi Neil it's Neil 🙂

The flaw here is only considering a straight percentage comparison between section 24 and interest rates.

Section 24 can push Landlords into being high rate tax payers paying tax on non existent profit. It assumes all rent is profit before mortgage interest is deducted. Therefore you could actually be making a loss and be paying high rate tax at an infinite percentage of profit !!!!!

Therefore the assessment has to be made first on the change in your tax position and any future change. Please see our updated tax planning page >> https://www.property118.com/tax/

Then you can assess if it is worth going the Limited Company route.

On the rate side it is impossible to say without getting one of our brokers to complete a full fact find with you as the rate you can obtain depends on hundreds of criteria. Yes 1.69% is one of the lowest standard BTL rates, but at 65% LTV you could possibly be looking at 2.95% for a limited company.

If you have had a whole of market search completed on your behalf after a full fact find then these rates are likely to be reasonably accurate.

Yes most Ltd company BTL lenders will want a personal guarantee, but then you are jointly and severally personally liable for the debt on a personal BTL loan as well.

I hope that helps a little.

Sam Addison

21:10 PM, 26th June 2017
About A year ago

We also found that Precise mortgages required us to employ a second solicitor to explain to us the potential consequences of a personal guarantee - at £250 each for me and missus - on a £75k house! It appears we would then have to do the same again if we bought another house by the same route!

H B

22:53 PM, 26th June 2017
About A year ago

My feeling is that as this way of purchasing becomes the norm, the price gap between personal and company BTL mortgages will close.

The downside is that as this becomes more popular, the government will do its best to remove the tax advantage of this method of buying, potentiality leaving you with a higher mortgage rate and no tax advantage.

Trevor Cooper

12:40 PM, 27th June 2017
About A year ago

I agree with HB that the gap will close as more lenders start to enter the ltd company mortgage market. I have also just made my first purchase within a limited company and had to get a second solicitor involved, although I managed to negotiate the fee to £150+VAT total for both of us.

Mervin SX

1:42 AM, 28th June 2017
About A year ago

Neil,

I am just about starting to explore options to buying my next BTL properties within a Ltd. company structure. I have looked at a few sources - Fleet Mortgages, Kent Reliance, Aldemore, SBI UK, Keystone Finance and brokers such as Mortgage for Business and Brooklands Commercial Finance. And I think you should be able to get better rates than what your IFA has proposed !!

As Neil Patterson say above, there is much more advantage to a Ltd. company purchase, than the 20% taxation on income. Contact one of the brokers above and you'll probably be better off.

Hope this helps.

Heather G.

16:52 PM, 28th June 2017
About A year ago

Funnily enough, I just came across this article in Property Wire which highlights the fact that Ltd Co BTL might not be the most efficient option (depending on how many properties you own & your personal circumstances).

http://www.propertywire.com/news/uk/limited-company-status-see-buy-let-landlords-worse-off-financially/?utm_source=Property+Wire+News&utm_campaign=deafd7e0d4-RSS_EMAIL_CAMPAIGN&utm_medium=email&utm_term=0_cb0fe1dd73-deafd7e0d4-104062237

Howard Reuben CeMap CeRER

10:05 AM, 3rd July 2017
About A year ago

Being a Ltd Company borrower can possibly have the right tax advantages (mainly for higher rate tax payers of course), but one factor that many people overlook is the massive benefit of succession planning.

Ok, let's put to one side the rates and fees for each mortgage product (although by the way, yes, our Firm - see my profile - is definitely able to find better value costs than what has been quoted above) and let's instead look at the long term, or maybe the short term (who knows when we're going to part this mortal coil) and who is going to inherit your assets?

If the debt isn't covered, the assets might have to be sold. That removes ongoing income, future capital growth, possible reduction in actual value at sale due to CGT liability, possible reduced value due to a 'fire sale' to quickly dispose in order to repay lenders, as well as the grief and the uncertainty of how the surviving family will cost effectively and legally take over the property ownership.

Not all intended beneficiaries are sufficiently credit worthy to take on the mortgage, or remortgage in to their own names. Not all BTL mortgages run past your age of 75, 80, 85. What happens when you reach 85? You'll be too old to remortgage and will be forced to repay the debt(s).

A Limited Company ownership, with family members as shareholders could potentially save most of the issues above.

Irrespective of rates and fees, succession planning - in my professional opinion (both as a Broker, but also as a long term portfolio landlord myself too) - should be a factor hat's considered at the outset and upon your annual business review (after all, running BTL's is a business irrespective of how you own the assets anyway, isn't it?) .

H D Consultants is a team of professional Advisers who have privileged access to the widest possible property investor finance marketplace via our two FCA authorised sister Companies. Whether the finance is required for individuals, partnerships, LLP's, Trusts or Limited Companies, our research and formal recommendation service is based on wanting a long term relationship with our Clients (we have been going strong - without a penny in to advertising - for over 24 years now) and our associates (specialist tax advisers, legal consultants, insurers, lenders and estate planners) all work together for your benefit.

So, even though the subject title is "Are Limited Company Buy to Let Mortgages worth it?" the answer is yes, if you have to raise finance to ensure your short, medium and long term asset protection plans are robust and 'future proofed' too.

Final note on mortgages - Why not take a look at Property118's mortgage sourcing tool (online, user friendly and free to use) here > https://www.property118.com/mortgage-sourcing and then call us for a comparative quote for Ltd Company mortgages?
Howard Reuben recently posted...HD Consultants Testimonials - Mortgage & Protection | Buy To Let | Colchester


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