The Clients: First-time landlords, with a newly set-up SPV Limited Company. With a successful trading business, our clients were beginning their property investment journey using saved profits.
The Properties: Two new-build semi-detached houses, each with three bedrooms. In close proximity to local amenities and schools, both properties promised to bring in a high level of tenant demand.
The Finance: Our clients funded the full development costs of both properties through their trading company and were looking to exit onto buy to let mortgages. Refinancing would allow them to recoup the money invested in the build back into the trading company and go towards further property investments.
The Challenge: The primary challenge to overcome was finding a lender happy with how our clients funded the building works. We needed to provide clear evidence of the trading company’s funding trail to prove the finances for the build were legitimate. Whilst this seems simple enough, it requires a lot of extra documentation from the borrowers and a long due-diligence process from the lender. We also had to factor in that some lenders won’t offer on new build properties, and some don’t like to offer to self-funded developments. This is because buy to let lenders are wary of lending to anything that may be remotely commercial, and therefore are risk-averse to developers.
There was also the issue of the difference in the set-up of the trading company and the limited company. The new limited company was in both clients’ names, but the trading company that owned the limited company was just in the one. Therefore, lenders would be wary about the funds being distributed this way in case any issues arose between the limited company directors in the future. Lenders would need to be sure that the companies had an acceptable set-up to ensure the correct people benefit from the funds. Typically, this requires all involved companies to have the same ownership structures.
The final challenge with this case was the short ownership period of the property. Lenders typically prefer to see clients as the registered property owner for at least six months, which our clients did not meet, to protect themselves from repossessing any properties in negative equity. As such, the complications with this case meant that finding a suitable lender would be difficult.
The Solution: With our experience in complex buy to let cases such as these, we knew that getting all the necessary documentation that a lender could request together in advance would be the best way to secure a deal. As such, we researched the market for an appropriate lender. With the documentation in place and the knowledge that our clients’ future plans for property investments were just standard buy to let purchases rather than more development projects, we managed to source a lender. As our clients were married, the lender was happy to take a view on the company set-up and short-term ownership, and our clients were more than pleased with the competitive rates we secured for them. Here are the details:
Property values: £365,000
Loan amounts: £273,750
Rate: 3.19% 5-year fixed
Term: 25 years, interest-only
Mortgage payment: £740 per calendar month
Lender arrangement fee: 1.75% (£4,790.63)
Rental income: £1,250 per calendar month, per property
Application: SPV Limited Company
13th July 2022