Directors’ loan to help purchase ex-LHA central London flat

The clients: A married couple looking to purchase their seventh investment property. The pair hold all their properties within an SPV limited company.

As well as managing their property portfolio, both husband and wife work as accountants on a self-employed basis.

The property: An ex-local authority, one-bed flat within a purpose-built block in central London. Built in the 1960s, the block consists of five storeys – 50% of which is now privately owned.

The couple were looking to purchase a flat on the second floor with 85 years remaining on the lease.

The finance: To cover the deposit, the clients had transferred some of their personal savings into their company.

N.B. This type of transaction is known as a directors’ loan. Most lenders are comfortable with this and will just ask for the directors to provide company accounts and/or bank statements to show that they have the funds available to loan the company.

To complete the purchase the pair needed a loan amount of £257,856 (67% LTV).

The application process: Most lenders like to see that at least 75% of a block is privately owned. As only 50% of this block is privately owned, we needed to take the case to one of the specialist lenders.

We worked with the couple to collate the documentation required to support the application. This included a spreadsheet detailing their entire portfolio, three months’ bank statements, proof of address and proof of ID.

We submitted the application and received an offer back three weeks later. Here are the details of the deal:

Property Details

Property value: £385,000

Loan amount: £257,856

LTV: 67%

Rate: 3.39% 2 year fixed

Term: 25 years interest only

Mortgage payment: £737 pcm

Rent: £1,343 pcm

Gross yield: 4.2%

Lender arrangement fee: 1.25% of loan amount

Consultant: Agata Rogozinska, 01732 471602 or 07976448467

11th December 2018