Mortgage Works Re-enters BTL Ltd Company Market
Mortgage Works re-enters Buy to Let Limited Company Market
The Mortgage Works is a well-known lender in the buy to let market but it has not been a lender to property corporations for some years. It has recently announced that it is re-entering this market. I assume this is because many property investors will be moving over to corporations due to the many tax impositions that the Government has introduced over the past few years.
These changes include the reduction of the amount of tax relief on loan interest.
How will it work
Initially they have introduce five pilot products that are available through brokers with access to Mortgage Intelligence and The Buy to Let Business.
They are also including an HMO product for those who buy HMOs to let.
According to Mortgages for Business Ltd, around a third of lenders offer loans to property corporations which equates to around 153 lenders. These loans are restricted to companies that operate under Special Purpose Vehicles (SPVs). Very few lenders will lend to a BTL who trades as a limited company outside of an SPV.
What is an SPV?
Special Purpose Vehicles or SPVs are a legal term for a company that has one special purpose, e.g. to hold property. An SPV in relation to property, therefore is a company that is set up to hold property and not do anything else – so it cannot be part of a business with other operations. Lenders prefer SPVs because they are simple to understand and easier to underwrite when it comes to loans.
Benefits of Limited Companies
Limited companies offer some tax benefits that are not available to the usual BTL landlord.
- Lower interest rates
- Mortgage interest can be offset against profits
- Tax efficient
- Dividend tax lower
- SPV cheap to set-up
It is obviously wise to do your research before entering a limited company and speak to an accountant.
A word of Caution
The Chancellor may introduce legislation to reduce tax benefits to landlords on the next or future budgets in order to discourage landlords from using limited companies as tax havens.
The budget next week will give us an idea of the Government’s direction of travel on this issue so watch this space.
There are some limitations to operating under limited company status and these are discussed in one of my other videos available on my buytoletinfo YouTube channel.
We may see more High Street lenders enter this market if landlords do make a mass exodus into limited companies in the future.