Remortage when limited company

Pearl1

Hi
I'm in the process of buying some BTL properties, at present I'm a sole trader but will soon change to a Ltd company.
Is it right that being ltd means they only take into consideration your books as a ltd company and the sole trading previous 3yrs can't be accounted for in a mortgage application?
I will hold off the change to ltd if this is the case

Caladan

Probably depends on the lender.

I am aware of at least 2 (which is all I have any experience with) where as long as it is exactly the same business running in exactly the same way, they are happy with 3 years history.

NOTE: I have only seen it happen where there has been at least 1 years limited company accounts available (so 1 year as limited and 2 years as sole trader). No idea if that is important.

Might be worth thinking about the fact that when a company goes limited, it can be tax beneficial to make as little money as possible in the first year, so the first years accounts could make lenders nervous unless already available.

~Waits for someone with more knowledge to chip in~

uncreative

Caladan wrote: »

Probably depends on the lender.

I am aware of at least 2 (which is all I have any experience with) where as long as it is exactly the same business running in exactly the same way, they are happy with 3 years history.

NOTE: I have only seen it happen where there has been at least 1 years limited company accounts available (so 1 year as limited and 2 years as sole trader). No idea if that is important.

Its you thats applying for the mortgage, not the ltd company. You will have to do a tax return anyway so will have 3 (or more) years worth of SA302's with which to support your taxable income.

Caladan wrote: »

Might be worth thinking about the fact that when a company goes limited, it can be tax beneficial to make as little money as possible in the first year, so the first years accounts could make lenders nervous unless already available.

~Waits for someone with more knowledge to chip in~

The results of your trade in the first year are the results, end of. If a ltd company makes a loss in its first year then it can likely carry forward the loss to offset against next years taxable profits, but to make, for example, a £10,000 cash loss to save £2,000 cash tax is not really going to be a winner. And to re-iterate, the directors earnings are what the mortgage company looks at, not the profits of the ltd company. Unless of course you decide as a director to pay yourself a completely unsustainable wage and plunge the company so they will of course look to see that the ltd company has some underlying sustainability to it.

uncreative

What is clear though is that you definitely need in my view to get a broker on it and your accountant may also need to get involved. Many lenders will want some kind of letter from a qualified accountant.

Thrugelmir

Pearl1 wrote: »

Hi
I'm in the process of buying some BTL properties, at present I'm a sole trader but will soon change to a Ltd company.
Is it right that being ltd means they only take into consideration your books as a ltd company and the sole trading previous 3yrs can't be accounted for in a mortgage application?
I will hold off the change to ltd if this is the case

How will the Company service the debt if there's no income?

HappyMJ

Pearl1 wrote: »

Hi
I'm in the process of buying some BTL properties, at present I'm a sole trader but will soon change to a Ltd company.
Is it right that being ltd means they only take into consideration your books as a ltd company and the sole trading previous 3yrs can't be accounted for in a mortgage application?
I will hold off the change to ltd if this is the case

They'll take either your sole trader income or your Ltd. company accounts into account. If you can explain the reasoning why you switched from sole trader status to Ltd. company then the change of name and status won't affect your mortgage application.

silvercar

Are you planning on buying the properties inside the limited company or in your own name?

Generally speaking, BTL mortgages are based on the prospective rental income of the properties, not the income of the applicant. Most lenders will also want to see that the landlord has sufficient income to tide them over any problems.

Thrugelmir

silvercar wrote: »

Most lenders will also want to see that the landlord has sufficient income to tide them over any problems.

In the case of a limited company may well require personal guarantees or charges over other assets. If there's no unencumbered assets held within the Company.

uncreative

The bank supporting my BTL company didnt require any guarantees other than standard security as long as I put in at least 30% per property which can be treated as a directors loan.

There are potentially harsh tax downsides in running BTL through a ltd company but I am aware of those so the attraction of an LTD BTL is enough for me.

Now that there are 3 in there it makes the next one almost self funding. I will get the draw down for number 4 with a phone call.

csgohan4

Being tax efficient does have it's down sides for mortgages unfortunately.


But generally as said earlier based on SA302 and via salary +/- dividends and a higher deposit.


However given the changes in April next year it makes it more undesirable for Limited companies using the dividend route.


So the only way to keep lenders happy is to pay a higher salary or have a high enough consistent dividend payout for the last 2 years to ensure a high income multiplier.


But lenders may look at your company accounts to ensure your not making a loss every year and playing the numbers game, as my lender did.

However it's important to have a good broker to help you. Being self employed means your less likely to get the best deals than if you were employed with the same gross pay.

Unfortunately being self employed does have its disadvantages.

Pearl1

Thanks all

Going Ltd will be put on hold for the time being, once the btl have gone through we'll gone from there.
Sound advice
Thanks