We were approached by a family of four from Oxfordshire looking to purchase a rental property – a townhouse on the outskirts of their home town.
Between them, the family already own five rental properties. This next purchase was to be their first within an SPV limited company which they had set up to make all future acquisitions.
The parents each have a 17% shareholding and the sons have 33% each. Unusually, only three of them - the mother, the father and one son - are company directors. As the other son is not involved in the day to day running of the portfolio, it was felt that there was no need for him to be a director.
This meant we needed to source finance from a lender which would underwrite the application based solely on the three directors' backgrounds. This is uncommon – most lenders will insist on all shareholders owning more than 20% of the company to either be a director or at the very least be underwritten and sign a personal guarantee for the loan.
We took the case to an intermediary only lender, which will consider underwriting on this basis. In order to achieve a loan of £210,000 we recommended a five-year fixed rate product which has a more generous stress test calculation than its shorter term counterparts.
The case is due to complete mid-January. In future, the family plans to purchase a new property via the SPV every six months or so, although they do not intend to move their existing properties into the company.
Here are the details of the deal:
Property value: £280,000
Loan amount: £210,000
Rate: 3.79% 5-year fixed
Term: 22 years, interest only
RTI: 125% @ 3.79%
Lender arrangement fee: 2% (£4,200)
Mortgage payment: £677 pcm
Rental income: £1,250 pcm
Gross yield: 5.35%
Consultant: Chris Longhurst, 01732 471607
2nd January 2018