Paul explains what buy to let lenders will and won’t accept as a deposit when borrowing via an SPV Ltd Company
As the number of buy to let landlords borrowing via SPV limited companies continues to grow, I thought it may be useful outline what lenders can and can’t accept as deposits on these applications. To ensure that standard anti-money laundering checks are met, the lender (and the solicitor) must identify a clear and legitimate source of funds.
The most common deposits for limited company applicants are:
- Savings. This is the simplest way to providing a deposit. You will need to show a build-up of savings in your account, usually by providing at least three months’ bank statements. If a large sum has been paid in it is possible underwriters will want to know the source.
- Directors’ loans. Most lenders are comfortable with these and will require either company accounts and/or bank statements to show the director has the funds available to loan to the company.
- Gifted deposits from close family members. These are acceptable to lenders but usually needs to be from parents – lenders will often request to see proof of funds in the form of bank statements.
- Inter-company loans. Not all lenders are happy to accept these. Where the SPV is a subsidiary company, there are a few lenders that will allow inter-company loans, however, some will insist on the parent company paying dividends to the director then the director loaning to the subsidiary company, whereas others will lend as long as the directors are the same on both companies and the directors are the shareholders of the parent company.
- Sale of property. A common approach is to sell a property or refinance another property and use the funds raised as the deposit. Where this occurs the lender will request either bank statements showing funds going into the account or a completion statement from the solicitors.
- Shares. This isn’t something I see very often nor do lenders but in theory they are acceptable. The lender will want to see the contract note for the shares and potentially the funds in the account once the shares are sold.
- Inheritance. This form of deposit is accepted by many lenders as long as they receive a letter from the solicitor confirming details. By its very nature, inheritance and probate scenarios can be quite time-consuming so finding the right lender can be key.
- Deposits from overseas. Perfectly acceptable as long as the country the money is being transferred from is signed up to the Financial Action Task Force (FATF)
If you are looking to finance buy to let property through an SPV limited company and your deposit is NOT on the above list, don’t despair!
In my experience, some of the more specialist lenders will often take a more flexible and sophisticated approach than the tick box exercise often used for personal borrowing, so it is always worth running the scenario past us to confirm the best route to proceed.
Paul Martins has left Mortgages for Business for pastures new. For more information or for any questions relating to this blog, please contact the BTL Team on 0345 345 6788, where one of our consultant mortgage brokers will be happy to assist.