We were approached by a father and son who were looking for a mortgage that would allow the father to sell one of his personally owned rental properties to their Special Purpose Vehicle limited company.
The father is a higher rate tax payer who works in the chemical industry as well as owning several rental properties personally.
The son works for a high street chain although eventually he plans to run a considerable property portfolio. He currently lives with his parents and doesn’t own any property personally.
The SPV was established a few years ago with a view to early inheritance tax planning, the intention being to gradually sell the father’s personally owned properties into the corporate structure.
The initial share ownership of the company has been set at 80 / 20 in the father’s favour.
Adjustments to shareholdings in the future then become easier to enact.
The property being bought and sold is a 4 bed semi-detached house in an East Anglian university town which is let to students and generates a good income.
Whilst the main focus is for the SPV to purchase the property (at full market rate), the father is also taking the opportunity to maximise the borrowing.
The surplus cash raised will be used as a deposit toward the next acquisition by the SPV.
Having sourced a few different borrowing options, the clients opted for a product from a specialist lender that Mortgages for Business have direct access to, because:
- They are one of only eight or nine lenders which lend to SPV
- They are happy to accept transactions where the buyer and seller are related (known as “associated transactions”)
- Unlike many lenders they will accept first-time buyers and first-time landlords (the son has never owned property before).
The difference between the purchase price (£150,000) and the loan amount (£112,500) has been left in the company accounts as a directors’ loan (£37,500) by the father.
Many lenders do not allow this and prefer the deposit to be cash.
The mortgage chosen is a five year fixed rate, designed specifically for SPVs.
Whilst the SPV is the borrower, both father and son will provide personal guarantees, which is usual for limited company buy to let applications.
The application progressed without a hitch and now the son can now start to actively manage and expand the portfolio with a view to making this a career in the fullness of time.
Property value: £150,000
Loan amount: £112,500
Term: 5-year fixed interest only
Mortgage payment: £487 pcm
Lender arrangement fee: 2.25% (£2,531.25)
Rental income: £1,375pcm
Gross yield: 11% pa
Consultant: Chris Longhurst, 01732 471 615
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