setting up in the Buy-to-let business
We are often asked what income does a limited company need to show to qualify for a buy to let mortgage? It depends on the type of company and the circumstances of the directors and/or shareholders.
New established SPV (Special purpose vehicle)
The majority of limited company buy to let mortgage applications that come our way are from landlords who have recently set up an SPV limited company. This means that company does not have any income.
In these situations, lenders will underwrite the SPV as though you are applying for a buy to let mortgage in your personal name, i.e. your personal income will be used to satisfy criteria. Just like personal buy to let mortgage applications, some lenders require your income to be more than £25k pa but we have access to lenders which have no minimum income requirement for limited company borrowers.
An accounts assistant employed full time at a toilet roll company earning £18k pa. He sets up an SPV and is the sole director/shareholder. He has a deposit of 25% to purchase his first buy to let property via the SPV.
As long as he owns his own home, there are lenders which will consider his application even though he earns less than £25k pa.
Older SPVs will need to show two years of strong accounts. As the SPV does not “trade,” some lenders will accept accounts which have been kept by the applicant rather than insisting on formal ones from an accountant. If the income in the SPV is less than £25k pa, the lender would also look to assess the director’s personal income and circumstances too.
Trading limited companies
Few lenders offer buy to let mortgages to trading limited companies because they require a greater level of understanding to underwrite. These products are mostly accessed by a select few intermediaries who have the skillset to make sure the application meets the lender’s specific requirements.
In these cases, most lenders will need to see two years of strong accounts which show income/ net profits of £25k - £50k+. However, there are some lenders that will lend as long as taxable income can be proven, regardless of the total amount.
If the company has made an unexplained loss, has a slow year or year-on-year steadily declining profits, the directors will struggle to get a mortgage because lenders might think that withdrawing company funds to use as a deposit will be detrimental to the business.
Regardless of the amount, lenders want to see income in some form or another as reassurance that, should the property go a couple of months without a tenant, it would not place the client/business in financial difficulty.
Lots of lenders like landlords with reasonable sized portfolios because the risk is mitigated during rental void periods.
Some clients have a more complicated set ups, often using inter-company loans to purchase buy to let property.
The individual/s may own a trading limited company but set up a separate SPV in which to hold property. If they use their trading business to loan the SPV sufficient funds for a deposit, the lender will want to ensure that the trading company is strong enough to support such a withdrawal of funds.
In all cases, the lenders will require that the director/s provides a personal guarantee. This means that should the lender have to repossess the property and after sale, they are still owed money, the person offering the PG will be liable for that money. The lender will not take a charge on the person’s home.
Hopefully this explanation helps but if you have any further questions, do get in touch and we can walk you through how the process works for your specific circumstances.