First Time Buyer Limited Company

Can I get a mortgage through a limited company as a First Time Buyer?

Yes, it is possible – but actually it might not be as easy as people think. You’ll be left with fewer lenders that cater to First Time Buyers buying a property via a Special Purpose Vehicle (SPV). This is the type of company that you would need to set up.

There will be more criteria and additional questions, and you’re going to have to put a personal guarantee in place.

People might have personal issues that could make buying a home more complex, and think that buying through a limited company instead will help. It’s not as easy as that. You still need strong personal income and, potentially, experience in the field. The property you’re buying will need a solid rental yield, as well, to meet the risk profile for the lender.

It’s definitely best to have a chat with a broker and run those things by them before you waste too much time.

What are the typical requirements to apply for a mortgage through a limited company as a First Time Buyer?

There will be fewer lenders available to you, and that increases the chances of them saying no, subject to things they’re particularly looking for.

There can be stricter affordability checks and additional paperwork requirements for a limited company. If you can’t produce those, it could fall down quicker than on a normal application.

When buying through a limited company, interest rates and arrangement fees are higher and fees in general are potentially more. Valuation costs, solicitor fees, additional legal work all need to be factored in.

That shouldn’t steer you away from looking at this option if you feel it’s still best suited to you. It won’t take long for a broker to assess the two sides of that coin and tell you whether or not it is the best approach. But that’s the key.

What documents does a First Time Buyer need to purchase via a limited company?

It’s like any mortgage application, so we need pay evidence. That means pay slips, or if you’re self employed, SA302s, tax calculations or tax year overviews.

You’re going to need personal bank statements and a passport or driving licence. If you’re purchasing a property through a limited company, there’s a good chance you’re going to need additional documents on top of that – like business bank statements and company accounts.

Someone with properties in the background will need a portfolio schedule, although as a First Time Buyer, you don’t necessarily need that. You will need a business plan, because buying a property through a limited company is a commercial deal.

If you’ve got a good broker who’s experienced in the field, they will sit down with you and hold your hand through that process. While it’s a larger list than you would need on a conventional mortgage, that shouldn’t scare you away. If this is the best option for you, just go through that additional administration with your broker.

What is the maximum amount that can be borrowed as a First Time Buyer? What’s the minimum deposit required?

A good way to look at this is comparing the two options. You can buy a property as a First Time Buyer in your personal name, and most people start by buying a property to live in.

As a First Time Buyer on a residential property, you can typically borrow around 4.5 to six times your annual salary. The minimum deposit is 5%. But buying your first property through a limited company is a completely different kettle of fish. It will be viewed as an investment property and the maximum a lender will let you borrow will be based on the rental yield.

It’s got nothing to do with your personal income. There might be a need for a minimum salary, but that won’t drive how much you can borrow.

Likewise, because it is an investment property, you can’t put down a 5% deposit. It will be a minimum of a 25% deposit, although some lenders might allow 20%. You will also have higher rates.

As we touched on earlier, if you’re looking to buy a property through a limited company as a First Time Buyer to get around bad credit, that’s still going to be flagged up. If you’re looking to buy through a limited company because you don’t have the affordability, that will also come out in the application.

Lenders apply stress tests, require personal guarantees and will be looking at the rental yield for the property.

What if I’m a First Time Buyer and have bad credit? Will this affect me getting a mortgage through a limited company?

If you are a First Time Buyer and you do have bad credit, it’s not as simple as opening up a limited company, unfortunately. There will be a personal credit history check in the background – it still matters. There is also going to be a personal guarantee.

You also need to look at this from a tax perspective and see how it will affect the amount of tax you pay, rather than whether it helps get around a bad credit history or low affordability. That’s not the purpose.

There are two types of people when it comes to bad credit. Some think they’ve got bad credit but in fact it’s fine, and others think they’ve got perfectly good credit, but actually it’s terrible. Generally speaking, if you’ve got the odd missed payment here and there, it’s not much of a problem. Don’t be scared away.

But if you have County Court Judgements, defaults and debt management plans, it’s going to be more difficult for you. But there will be milestones in the future where things will become a lot easier. So ask a broker to assess your credit position – we’ll put a roadmap in place to set out when things will be more achievable, based on your intentions.

Can I get a Buy to Let mortgage via a limited company as a First Time Buyer?

Yes, but you need to be mindful of certain things. Lenders are going to ask about your experience, and they’re going to want to see a business strategy.

The biggest deciding factor is the deposit. If you bring a large deposit to the table, it’s going to overcome any other issues or negative aspects, to a certain degree. The bigger the deposit, the better.

Rental income is also a big factor. A property that will yield a decent income is a savvy business choice, and the lender will recognise that. As we touched on, if credit misdemeanours or hiccups are further in the past, that will help. If you missed a payment last month, that’s more difficult for an underwriter to sign off than something twelve months ago.

The company structure itself is important. Make sure it is set up correctly – it needs to be a Special Purpose Vehicle to access the most lenders. It can’t just be a trading company. It needs to be a property holding company with the correct SIC codes, which you select as you register with Companies House.

You will need the codes for property letting and investment – usually 68100 or 68209. Again, speak to a broker and we can explain those codes.

What are the benefits and risks of getting a mortgage via a limited company as a First Time Buyer?

The main benefit for any limited company purchase is the same across the board. It doesn’t matter if you’re a First Time Buyer or a very seasoned landlord.

The reason people buy a property in a limited company comes down to tax efficiency. The main point is that you can offset 100% of your mortgage interest against the rental income. Meanwhile, if you own it personally, you can only offset 20% of that.

If you’re a higher rate taxpayer, which a lot of people will be if they have properties adding to their personal income, instead of paying 40% income tax on your profits, with a limited company you only pay 19% corporation tax.

It means your profit margin is smaller, and the tax due is less than half. Nine times out of 10, it would benefit someone to buy an investment property through a limited company, versus in their personal name. But have a chat with a broker, because you might well be that one person out of 10.

If you’re looking to grow a portfolio and you buy a property personally, portfolio growth will be tough. The minute you get to three or four properties, most lenders view you as a portfolio landlord. At that point, the stress tests that determine how much you can borrow and the required deposit become much tougher. You’ll expedite that process if you buy through a limited company from the start.

There are also benefits around estate planning with a limited company – it makes it simpler than if those assets and liabilities were in your personal estate. That’s a conversation for an inheritance tax planner rather than a mortgage broker.

Those three factors are the big reasons why people choose limited companies over personal purchases. If they’re not important to you, you may choose to buy property in personal names instead.

What else do we need to know about buying through a limited company as a First Time Buyer?

These transactions are so technical, so layered, and they’re so specific to each individual. If the points here don’t resonate with you, you might be looking at buying through a company for completely different reasons.

First Time Buyers might have problems with credit and affordability and be looking at this option to avoid those issues. But those concerns will still come out of the woodwork. Rather than go around in circles, start by seeking out advice from someone who knows what they’re talking about.

You could go through your specific situation with me and you wouldn’t have to pay anything for my advice. If you get to the point where you need to progress an application, there may be a cost to you, but it doesn’t hurt to pick up the phone and double check you’re heading down the right rabbit hole.

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.