The vast majority of information in the press points landlords towards purchasing Buy to Let (BTL) properties in a Special Purpose Vehicle (SPV). However, there are other options, and importantly for some, these should not be overlooked. It is correct that the SPV route will attract the most competitive rates and can be seen as the simplest route for a Limited Company purchase, however a mortgage through your Trading Company may work out the most cost-effective for some people.
One of the main reasons is the deposit. Trading Companies work hard in their specific fields to build up money which sits in their business and when it comes to withdrawing this money it will attract some form of tax (once the dividend allowance has been used up). Using the funds as a source of deposit results in not withdrawing the funds from the company and means you do something with the cash rather than just sitting dormant in the company.
Rates in a Trading Company tend to be a little bit higher but a number of limited company lenders now lend to Trading Companies which has made the difference between trading company rates and SPV rates minimal. Lenders will want to see at least 2 years of trading, positive accounts and be comfortable that taking the deposit from the company won’t hinder the trading element i.e. usually use the funds for stock and without the funds, it slows business and jeopardises the company. The underwriting will be done against the directors and shareholders of the company in the same way as an SPV.
Some lenders will look to take a floating charge or debenture over the company, which in many circumstances is seen as too restrictive particularly when it comes to trading companies. However, more and more lenders are moving away from this so a Trading Company mortgage should be an option to consider if the circumstances (and tax advice from your accountant) are right.
Please contact the team at Hawke for more information and a Trading Company mortgage quote.