As you would expect during the holiday season, our Deal Placement Team is quieter than usual. But that doesn’t mean, we’re not busy.
The phones are ringing and as we anticipated, there has been a considerable increase in the number of enquiries from brokers about buy to let mortgages for limited companies.
Brokers who don’t usually handle this type of deal have been asking us for help in understanding these products and their availability, so that they can advise their clients with a greater degree of knowledge.
For those of you who have yet to receive an enquiry of this type, here’s an overview to help you understand this niche sector of the market.
In July, of the 889 (average) buy to let mortgage products available from the main lenders, just over 120 products were suitable for limited company applicants, representing around 13% of the entire BTL mortgage market.
I last wrote specifically on limited company buy to let mortgages back in February 2012. At that time there were just 40 limited company products available from an overall total of 456 products – less than 9% of the entire market.
In my opinion, the latest numbers represent a fairly healthy quantity and dispel the commonly held belief that there is a shortage of these types of products.
Around a third of buy to let providers (10 lenders), currently offer products to limited companies although the majority of these restrict their lending to Special Purpose Vehicles backed by directors’ personal guarantees.
For SPVs, the lenders we mostly deal with are:
• Shawbrook Bank
• State Bank of India
Fewer options are available to Limited Liability Partnerships but in general, lenders who do offer products to LLPs tend to underwrite using the same principles as for SPVs.
Only a few specialists accept trading limited companies and most of these can only be accessed by a handful of brokers (including Mortgages for Business of course!). We tend to use Aldermore Bank, Interbay, Landbay, MetroBank and Shawbrook Bank.
Products for these applications tend to be underwritten on a much more commercial basis, so expect higher rates and fees – a longer turnaround time.
Rates and pricing
Both trackers and fixed rates are available. As you might expect, pricing is a bit higher than for personal applications because assessing cases requires greater skill and more time.
According to our last Buy to Let Mortgage Costs Index limited company products are currently around 0.8% pa more expensive than products priced for individual applicants, (Ltd Co average rate is 5.4% compared to products for individual borrowers at 4.6%).
There are some products which are more attractively priced however, these tend to carry restrictions on availability.
Around half of all products for SPVs are available to 75% LTV although you can expect better pricing at the lower LTV points.
There are a few products at 80% LTV and of course, Kent Reliance offers a couple of products at 85% LTV with rates and fees at the higher end – arrangement fees currently 2.5% of the loan amount.
Most fees are percentage based ranging from 0.5% to 2.5%, although Paragon and MetroBank are currently offering some rates with no arrangement fees.
In general, SPV applications are processed very much in the same way as personal ones although most lenders like the directors to have some experience as a landlord even if it is only owning one rental property.
Newly created SPVs – i.e. those which do not have any accounts - are not difficult to place because the underwriting is done on the strength of the directors. Cases of first-time landlords with newly created SPVs are much more problematic and if you’re not experienced in this field it’s probably easier to go through a master broker.
Some of the more established lenders will only accept two directors on an application because that’s all their systems will allow; however, the newer entrants tend to accommodate up to four as standard and more if required.
Supporting documentation requirements for SPVs is pretty much the same as for personal borrowers because the application is predominantly written on the strength of the supporting personal guarantees. Obviously, where accounts exists, they will be required.
Trading limited companies will need to provide at least 2-3 years’ successful trading accounts.
And that’s pretty much it. Nothing to be scared of. If you feel, it’s not your bag, get in touch and we’ll help you through it!
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11th August 2015