First-Time Buyer Limited Company
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First-Time Buyer Limited Company
Oliver Callister explains the process of applying for a mortgage through a limited company as a first-time buyer.
Can I get a mortgage through a limited company as a first-time buyer?
You can definitely get a mortgage as a first-time buyer through a limited company. This would only be linked to a Buy to Let mortgage rather than a residential. All the questions today are going to be linked to Buy to Let properties, not residential ones.
What are the typical requirements to apply for a mortgage through a limited company as a first-time buyer?
The main difference in lender requirements is that they typically need a minimum income, typically in the range of £25,000 to £40,000.
The other area where it can get more complicated is that the underwriter will always check that the case makes sense. If, for example, the applicant lives in the same place or town where they’re looking to purchase that property, the underwriter will look more closely. They don’t want to see a ‘backdoor residential’ – where a first-time buyer secretly plans to live in the Buy to Let.
Because of that, when looking at a first-time buyer, they’d potentially assess the mortgage using a normal residential affordability calculator. They will take your income and multiply it by 4.5 to check that, in theory, you could get a residential property if you wanted to.
What documents do I need to provide for a mortgage through a limited company as a first-time buyer?
Other than the standard documents, the main thing is your income. If you’re employed, they may request your latest three months’ payslips, or for a sole trader or a partnership, they might ask for the latest two years’ tax calculations and overviews.
If you run a limited company, they might also ask for full company accounts for the latest two years. Other than that, it’s standard documentation, which often includes ID and bank statements.
What is the maximum amount that can be borrowed for a mortgage as a first-time buyer? What’s the minimum deposit required for a first-time buyer? How does this differ for a limited company?
Whether you’re buying in a personal name or via a limited company, the deposit for Buy to Let is typically 25%. That’s the same for a first-time buyer as anyone else. Some lenders can go lower, to 20%.
In any situation, a mortgage is dependent upon the rental income received by that property. There are stress tests and rental calculations which will confirm whether you can use a 20% deposit or you will need 25%. So it doesn’t matter whether you’re a first-time buyer or an experienced landlord.
The majority of lenders don’t set a maximum mortgage, although some limit the borrowing to around £500,000. As a first-time landlord, you should look at standard properties, renting to a family or a couple. It would be difficult for a first timer to get a mortgage for a House in Multiple Occupation (HMO) or a multi-unit freehold property. You need to be a more experienced landlord for those types.
What if I’m a first-time buyer and have bad credit? Will this affect me getting a mortgage through a limited company?
It can affect you, and it depends on what that adverse credit is. Is it just a couple of missed payments or something more extreme, like a default, CCJ, an IVA or a bankruptcy? The worse it is, the more impact that’s going to have.
Lenders look at when it happened, how much it was for and whether it has been satisfied or brought back up to date.
Adverse credit is not necessarily going to stop you from getting a mortgage, but it may make it more challenging. Some lenders are a lot more accepting of this, while others aren’t. With adverse credit, a lender will potentially charge you more for that additional risk.
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Can I get a Buy to Let mortgage via a limited company as a first-time buyer?
The only type of mortgage you can get via a limited company is a Buy to Let. A residential property has to be bought in your personal name.
In terms of the limited company itself, lenders are typically looking for an SPV or special purpose vehicle. It’s not a trading company like a window cleaner or something that sells products.
An SPV is a special type of company that only deals with buying, selling and renting out properties. There are also special codes to be applied to that company to make it an SPV. We can go through all that you come and chat to us.
The company doesn’t need to have been running for a period of time – it can be set up for the application.
What are the benefits and risks of getting a mortgage via a limited company as a first-time buyer?
There are quite a few different parts to this – with both benefits and disadvantages. As a first-time buyer looking at setting up a limited company, it’s worth having a conversation with us, and also with an accountant or tax adviser.
If this will be your first Buy to Let property, you’ve got to look at your long-term strategy and how many properties you’re likely to buy. If it’s only a couple, buying in your personal name could be the right route, but if you’re looking to buy multiple properties, it’s probably worth exploring the limited company approach.
There could potentially be changes to tax rules along the way, which could influence things later on, but as it stands at the moment, things mainly depend upon your tax banding. If you’re a high-rate taxpayer looking to buy multiple properties, potentially you should look at a limited company, but it’s worth having that conversation with us and other experts to make that decision.
Aside from the tax perspective, you will also get potentially lower stress tests – the rental calculations – via a limited company, which means you could potentially borrow more than in your personal name. Again, that does depend upon your tax banding.
On the other hand, there could be extra costs in application fees and the extra legal advice needed for a limited company. You’ll also need an accountant as well, to complete an annual tax return.
You’ve demonstrated there how a mortgage broker can help – anything else you’d like to add?
We can find the most suitable lender for your circumstances and objectives. As an individual, you might just go to a couple of banks or building societies – and they may not be able to offer you everything.
As we mentioned, there can be a lot involved – whether it’s adverse credit, being a first-time buyer, something about the property or the stress test a lender is using. A broker will place that case with the right lender to suit you.
Together with an accountant or tax adviser, we can give you the most suitable advice, whether you choose to buy via a limited company or personally.
Key Takeaways:
- A first-time buyer can get a mortgage through a limited company, but only for a Buy to Let property, not a residential one.
- Lender requirements typically include a minimum personal income (usually between £25,000 and £40,000) and an assessment to prevent a ‘backdoor residential’ situation.
- The minimum deposit is typically 25% for a Buy to Let (some lenders accept 20%), and the maximum borrowing is generally open, though some lenders limit it to around £500,000.
- The limited company must be a Special Purpose Vehicle (SPV), and the decision to buy via an SPV versus personally should be based on your long-term strategy, tax banding, and the potential for lower stress tests (allowing more borrowing) through the company.
- A mortgage broker is crucial for finding the most suitable lender for your circumstances – especially if you have adverse credit – and should be consulted alongside an accountant or tax adviser.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE MOST BUY TO LET MORTGAGES.
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What you need to know…
The actual amount you can borrow will depend on your credit commitments, your regular monthly outgoings and how each lender assesses your income.
Lender’s affordability checks can differ meaning that the amount you can borrow may change from lender to lender. That’s where the expertise of our personal advisers comes in and where our independent status benefits you.
The minimum deposit required is 5% of the property purchase price. Most lenders will allow the deposit to come from a gift and some lenders will even consider this being raised via a personal loan. There are government incentives to help boost your savings if you are a first time buyer. Depending on your circumstance you may either need to have a larger deposit or will perhaps want to put a larger deposit down, due to preferable interest rates.
Because we are independent mortgage brokers we will be able to secure you the best deal for your circumstance.
An Agreement in Principle, also known as a ‘Decision in Principle’ will be provided after affordability and credit checks have been approved. An Agreement in Principle is extremely useful to increase your confidence when viewing and offering on properties. Estate Agents will typically want to see an Agreement in Principle before presenting your offer to the seller. Our personal advisers can help you with this.
It’s a requirement of your mortgage to have buildings insurance. This covers the bricks and mortar of the property.
It’s also a good idea to take advice from your personal adviser on protecting you and your loved ones if something bad happens. For example: Life Cover, Critical Illness Cover and Income Protection.
Being accepted for a mortgage does depend on your circumstances. We are experts with all types of mortgages…. We specialise in obtaining mortgages for the self-employed, contractors, construction industry scheme (CIS) workers and those with historic adverse credit (as well as employed people of course). In all these situations we can frequently secure high street deals. Being independent and experts is a real benefit in these circumstances.
Your monthly payments will vary depending to your chosen mortgage term, choice of mortgage product, how much deposit you have and repayment type. It is best to chat with a personal independent adviser to find out exactly what interest rate and term you can secure to give an accurate monthly payment.
Most of the first time buyers we have helped secure a mortgage are paying less on their mortgage than they used to pay on rent. This does, however, depend on circumstances. The mortgage term chosen is a major factor which can be dictated by your age and intended retirement age. Of course, it is also worth noting you are paying back the mortgage and once it is repaid you won’t have any rent to pay.
There are costs associated with purchasing your first home. You will need to pay legal fees and other potential costs include a survey fee, stamp duty (which is a property land tax) and administration fees. There are First Time Buyer government incentives on savings and stamp duty that can help you with raising the monies for a deposit, costs and reducing stamp duty. Our personal advisers can give guidance within a free consultation.