Ltd Company BTL Mortgage Rates vs, Personal BTL Mortgage Rates

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    Ltd Company BTL Mortgage Rates vs, Personal BTL Mortgage Rates

    Hi all, so I'm weighing up whether to go down the Ltd Company BTL route vs. the Personal BTL route. However, I'm struggling to find descent mortgage interest rates. I'm aware that personal BTL interest rates are lower eg 2.3% vs Ltd company at 4.71%. So, my question is what is the best Company BTL interest rate I’m likely to get on a £250k house with £125k deposit for up to 22 years. I’m looking to purchase 3 of these, but not necessarily all at once.

    For example, on a 125k loan over 25 years the Company BTL is a whopping £49k in interest more than a Personal BTL mortgage.

    One of the main reasons I’m looking at a Company BTL is to pay corporation tax at 17% and not personally at 40% as a higher rate tax payer. I do not need to withdraw profit out of the Company thus the 32.5% dividend tax (on top of the 17% corporation tax) does not come into in my case.

    Many thanks in advance.

    #2
    You'll need to create a political party, get elected to government and become chancellor to reduce corporation tax to 17%.
    You'll have to end the company to extract your wealth somehow, the increase in value of your company is going to incur you CGT (if that exists at that point).

    And I now concede the floor to loanarranger...
    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

    Comment


      #3
      Thanks for your reply jpkeates. Yes corporation tax is currently 19% but from April it will drop to 17%. I admit I haven't looked deeply into CGT yet - but I will. The company approach has other advantages with regard to company shares and potentially other family members of the company. Which ultimately might out way the differences in interest charges. I was kinda hoping it would be an easy decision Company or Personal - but it isn't looking that way. More research required.

      Comment


        #4
        Originally posted by Jammy99 View Post
        Thanks for your reply jpkeates. Yes corporation tax is currently 19% but from April it will drop to 17%.
        A change that the new prime minister has said he will reverse.

        Obviously he's a man of his word.
        /shrug
        When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
        Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

        Comment


          #5
          In order that I can provide you with accurate corporate rates , can you please indicate Your preferment for incentive terms, 2/3/10 year fixed rates.
          You have stated that the cost over 25 yrs is £45000 more than in personal terms, given that reversionary rates differ and loyalty rates are between new business incentive rates and reversionary rates it is hypothetical to arrive at such a difference particularly as a good broker would be trying to secure better terms after the expiry of the incentive expires.
          Please do let us know your preferences and I will gladly advise on what are the current leading rates.

          Comment


            #6
            Oh thanks, I didn't know the new prime minister has said he will reverse.

            Hi loanarranger.
            I’ve been comparing the lowest overall cost at full term (is that a good place to start?)

            Whether that be 2, 3 or 5 or more years initial/fixed – I don’t mind so long as the overall cost is the lowest.

            Unless I’m going about this all wrong and I should be going for the cheapest initial rate then at the end of the initial period – jump ship to another lender. Can I do that? , do many people do that? and keep doing that say every 5 years?.

            At the end of the day I’m just trying to gauge the "overall cost" difference between Company BTL vs Personal BTL mortgage interest rates. From my initial findings the differences seemed to large.

            Comment


              #7
              Originally posted by Jammy99 View Post
              Unless I’m going about this all wrong and I should be going for the cheapest initial rate then at the end of the initial period – jump ship to another lender. Can I do that? , do many people do that? and keep doing that say every 5 years?.
              I definitely do that.
              When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
              Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

              Comment


                #8
                Jammy99 , I will provide current data based on the % LtV along with fees.

                In my experience borrowers , irrespective of whether it a res homeowner loan or BtL , borrowers look at what the new rate / loyalty rate would be including fees and compare against what is available in the market place . If you are intending to keep the property for a long term there seems little point in taking short dated fixed / discounted or tracker rates if it results on having to pay new mortgage completion fees each time one switches, even adding to the principle sum the results of such amortisation can make the exercise much more expensive when compared to taking a longer dated product,however as a broker one can only advise a client but importantly listen to what the clients Short medium long term objectives are.

                I will posttbe results on the open forum as the info might be of benefit to others interested in funding new acquisitions via a Ltd Co.

                Comment


                  #9
                  Hi Jammy99
                  As promised I have researched the sector for borrowing via an SPV , there are approximately 1445 variations on such borrowing , depending on Single Family Units to HMO/MUFB properties: the vanilla type of Home occupied by Single family unit has the lower end of the spectrum and the Complex types carry premiums which are expensive in comparison. The same applies to Mortgage Completion Fees which range from a fixed monetary amount to 1%/ 1.5% & 2%, overall the financial modelling works out very similar and much depends on whether the borrower is seeking the lowest mortgage range and happy to have a higher Completion Fee added to the loan. Also to bear in mind is the reversionary rate which can in some instances be eye watering and oblige the company or indeed as an individual borrower to automatically start the process of remortgaging with another lender.

                  2 Year Fixed Rates 2.44% to 2.99%
                  3 Year Fixed rates 3.24% to 3.35% lower rates are available on a discount against the Standard Rate
                  5 Year Fixed rates 3.05% to 4.74%
                  7 Year Fixed Rates 3.30% to 4.71%
                  10 Year Fixed Rates 4%

                  Important to note that the higher the LtV the higher are the funding costs hence the spread of rates from 50% gearing .

                  Hope this helps you in your deliberations, anything else please advise.

                  Comment


                    #10
                    Hi loanarranger
                    Thank you for your reply, yes it does help.

                    I’ve had another look at mortgage comparisons on-line :-

                    My scenario
                    BTL house purchase £250k
                    Borrow £125k over 22 years

                    For Company BTL
                    2yr fixed 2.94% then 5.76% variable overall cost £213,727 interest payable £86,667
                    5yr fixed 3.39% then 5.76% variable overall cost £206,255 interest payable £78,570

                    For Personal BTL
                    2yr fixed 1.19% then 4.74% variable overall cost £193256 interest payable £65,206
                    5yr fixed 1.64% then 4.70% variable overall cost £182,728 interest payable £54,678

                    Thus comparing the two 5yr fixed scenarios, the overall difference is £206,255 – £182,728 = £23,527.
                    At face value, the Company BTL mortgage is £23,527 more expensive than the Personal BTL mortgage. This is putting me off going down the Company BTL route, since £23,527 is a lot of extra interest to pay.

                    However, if I did go down the Company BTL route, should I be “ignoring” the difference and focus my efforts on re-mortgaging at the end of the 5 year fixed period to either, negotiate a better reversionary rate with the same provider or jump ship to another provider with the best initial rate for another 5 year fixed (taking into account remortgaging fees and costs.

                    At the moment I’m still undecided Company BTL vs, Personal BTL. But thank you all for any help and advice.

                    Comment


                      #11
                      You plan to never hit the reversionary rate, so you jump every 5 years (until that stops being an option because of changes in interest or law or something else unknown).

                      The mortgage cost is only one element to consider.
                      Your personal tax relief on the mortgage lending is restricted to 20%, all of the interest cost is an expense for your business.
                      Any growth in capital is subject to an allowance and then CGT when personal and is income to the limited company.
                      You have a personal income tax allowance (which may already be used up) and there's no corresponding allowance for your company.

                      You need to plug all of the variables into a spreadsheet and start making some assumptions and comparing over a period that makes sense.
                      I'd probably not plan more than 5 years ahead, because, after that, who knows...
                      When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                      Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                      Comment


                        #12
                        I say this respectfully but you are making the mistake in believing that the lowest rate is the best , take account of the Mortgage Completion fee which using the 1.64% 5 year deal carries a Fee of £2500 , there are rates slightly higher than this but with either a zero fee or markedly reduced fee and if you were to amortise the Comp Fee the cost over that period of 5 years is increased. As JP has stated correctly this is a spreadsheet exercise taking account of any Booking Fees, Valuation Fees payable (this can vary between lenders) and the Mortgage Comp Fee.

                        You have quoted TMW , an excellent lender who in addition to granting initial funding will also consider further advances should you wish to release equity to fund a new purchase, furthermore they also have a loyalty rate which sits between the reversionary rate and the New Business marketed rate. Forget trying to negotiate a lower Reversionary rate , that is fixed in stone.

                        Borrowing for 5 years where you intend to hold the asset long term is a prudent move and as a Broker I always start the review process at least three/four months before the current facility is due to expire, this enables new funding to be put in place if switching to a new lender and be available for drawdown 24 hours after the initial facility expires , however like everything connected to mortgages the Loyalty Rate may be more economic than switching but at least you have both ends covered.

                        You are indeed well advised to spend a few pounds consulting a good chartered or Certified Accountant to ensure you know all of the pros and cons of buying via an SPV. Whilst I like many of the Forum contributors have a fair to good grasp of taxation , this is one area I would never make a pronouncement upon instead guiding my client to an accountant.

                        Comment


                          #13
                          Taking on-board your replies jpkeates and loanarranger.

                          My going in point was to compare overall mortgage costs between Company and Personal BTL mortgages (not just going for the lowest rate). I was just taken back a bit by the seemingly significant difference and wanted to check if the difference is accurate or not.

                          That said, in reality if you change things say every 5 years you're never actually going to "pay" the overall cost of your first mortgage agreement.

                          If I switch mortgages every 5 years that could total into £1000's of fees (if you are not careful) but surely that applies to both Company and Personal BTL mortgages.

                          The loyalty rate, now that's interesting and new variable for me, does that apply to both Company and Personal BTL mortgages?

                          I have contacted a couple of Property Tax specialists, one wanted £150/hour + vat and the other £250/hour + VAT. Both suggested 1 to 2 hour phone calls (to begin with). As I'm only just starting out on this journey, I'm furthering my own research to better arm myself before seeking professional advice. I do have Ltd company experience, as I have my own Ltd company, Engineering based (and have done so for the last 15 years) and do use an accountant for my annual returns (sadly he is not property BTL focused)

                          I appreciate the mortgage is only one element - I am working on a comprehensive spreadsheet which will indeed take into account the other pros and cons of Company vs. Personal BTL ventures (tax relief, CGT etc). However, if my "mortgage data" is not accurate, that will throw out all subsequent calculations.

                          Thanks again for your help.

                          Comment


                            #14
                            No problems, your question had validity and justified every assistance. In terms of updated rates as and when you need them just let us know.
                            Important to note that not all lenders offer loyalty rates , I know for a fact that as many of the relative newbies to this sector have warranty agreements from their wholesale funders which excludes either Further Advances and loyalty products, the turnover of mortgages invariably mirror the initial incentive rates and barring a significant downgrade of capital values or a change in fortunes by the borrower ,such loans get repaid and then the cycle starts again with new customers.

                            Comment


                              #15
                              Originally posted by Jammy99 View Post
                              I do have Ltd company experience, as I have my own Ltd company, Engineering based (and have done so for the last 15 years) and do use an accountant for my annual returns (sadly he is not property BTL focused)
                              That's a huge advantage.
                              It's a business - it's just an investment business rather than a build/buy and sell business.

                              Loanarranger is right, that your particular situation will be unique and so the right route isn't necessarily right for anyone but you.
                              And things don't stay the same.
                              My wife and I operate in our personal capacity because x years ago that was (I'm confident) the right way to go.
                              If we were starting now we'd probably use a limited company, but the cost of transition makes the switch close to impossible.
                              So what was best "then" isn't best "now" and who knows in another few years.
                              When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                              Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                              Comment

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