Commercial Borrowing

What Options Are There for a Company When It Comes to Borrowing Towards Buying Property?

Limited Company Lending has become an increasingly popular borrowing structure among landlords and property investors. Typically, landlords will choose to set up an SPV (Special Purpose Vehicle) Limited Company. In the mortgage sector, this is a company that is set up with the sole purpose of purchasing and renting out property. For the most part, buy-to-let lenders offering mortgages to corporate vehicles prefer SPV Limited Companies as they're easier to understand and underwrite, being perceived as lower risk.

As Limited Company borrowing has become more popular, more lenders have entered the market space and now offer Limited Company mortgage products. As such, interest rate pricing has become more competitive.

Differences between commercial mortgages and commercial loans

When considering commercial borrowing, it's essential to distinguish between commercial mortgages and commercial loans.

Commercial Mortgages: These are long-term loans specifically designed for purchasing commercial property, such as offices, warehouses, or retail units. They are secured against the property and typically offer lower interest rates and longer repayment terms. The property itself acts as collateral, which means that lenders have a vested interest in the property's value and performance.

Commercial Loans: On the other hand, commercial loans are more flexible and can be used for various purposes, including purchasing equipment or financing operational costs. These loans may not necessarily be secured against property, making them potentially riskier for lenders. The terms of commercial loans can vary widely, often resulting in shorter repayment periods and higher interest rates compared to commercial mortgages.

As Limited Company borrowing has become more popular, more lenders have entered the market space and now offer Limited Company mortgage products. The competitive landscape has driven down interest rates, making it an attractive option for landlords.

Benefits of Limited Company Borrowing

There are several reasons why landlords opt to invest using a Limited Company rather than in their own name. One of the main draws is the possible tax benefits. With a Limited Company structure, you pay corporation tax on rental income, which can be more cost-effective if you fall into the 40% higher-rate income tax band, making it ideal for portfolio landlords. Please always seek professional tax advice before making any property investment decisions.

You also benefit from more generous lender stress tests when applying using a Limited Company structure, meaning you could borrow more per pound of rent. While Limited Company mortgage rates are typically more expensive than those for individuals, the pricing difference for a Limited Company buy-to-let mortgage is not significant. Many lenders will even offer the same mortgage rates to both individual and Limited Company borrowers.