Landlords using a limited company to invest in buy to let property now account for over half of buy to let mortgage applications. Yet, there is still a perception that the process is far more complicated and challenging than personal buy to let mortgage applications. Consultant broker, Adam Henderson, explains why this isn’t the case.
Whilst we’re accustomed to dealing with the limited company buy to let mortgage process daily, we understand that there are common areas of concern within the landlord community about it. Hopefully, this blog will put your mind at rest for some of the most frequently questioned areas.
Investing Through a New SPV Limited Company
Everyone has to start somewhere! And for this reason, investing via a newly set up Special Purpose Vehicle (SPV) limited company is not the challenge many landlords think it is. As long as you’ve set your SPV up with the correct SIC code, being a new limited company will not be a barrier to attaining a buy to let mortgage.
Charges and Debentures
As standard, lenders will use the property being mortgaged as the first charge security for the loan. Historically, some lenders would take floating charges over the limited company or a debenture, restricting further lending via that company. However, realising that many landlords opposed these additional security measures, things have moved on in recent years. While directors and shareholders will have to give a personal guarantee as extra security, most lenders no longer require floating charges over the SPV or a debenture. The only exception to this is if you’re investing via a trading limited company.
Income requirements vary from lender to lender. Generally, the majority will require you to have a minimum income of £25,000 per annum. However, some lenders have no minimum income and just require that you have an income but other lenders want you to have a higher income, e.g. £30,000. That’s why it’s helpful to use a broker who will know which lenders require what!
Still, the variety means that most circumstances are accommodated. As new SPV limited companies don’t have any trading history or rental income, lenders base their underwriting against your personal income. This ensures that should the limited company default on the mortgage, you should be able to cover it. Of course, once the limited company is up and running for a few years, this won’t be such a consideration. For more information, see our blog on the subject here.
As usual, different lenders have different experience criteria. For example, some will only accept borrowers with one or more years of landlord experience, whereas some are happy with newbies!
Saying that, if you’re a first-time landlord looking to mortgage a more complex property like an HMO, you’ll have fewer lender options than if you were to purchase a two-bedroom semi-detached house. Some lenders can accommodate new landlords seeking finance on more complex properties, but your application will need to be stronger in other areas to compensate. Again, this is another reason using a broker can be so valuable; we know where to go and how to help boost your application to give it a better chance of success.
It’s essential to ensure your chosen lender accepts your deposit source, and there are lots of options for limited companies. Please read our handy blog on the topic for a full breakdown of the most common deposits
A common misconception is that you cannot use funds capital raised by remortgaging another property. Wrong! Releasing equity from another property is a common deposit source, but you must provide evidence of the source of funds; otherwise, lenders won’t touch it. If you have any questions about what you need to prove the source of your deposit, do get in touch!
Not all properties are made equal in the eyes of buy to let mortgage lenders. Essentially, whether or not they accept particular types comes down to how difficult it’ll be to sell said property type should they ever need to repossess. That’s why flats above commercial, multi-units and (to a lesser extent) ex-local authority properties are some of the common properties not included on many lenders’ criteria. However, rest assured, there are plenty of buy to let lenders that are more than happy to deal with these more complex property types.
Background portfolio size
If you own four or more mortgaged buy to let properties, you are considered a portfolio landlord, regardless of whether they are all owned personally, in a limited company or across both (or other) structures. For some lenders, this immediately eliminates you from using them. For others, it’s not a problem at all.
It varies massively from lender to lender, but generally, they will consider or limit your background portfolio based on one of the following ways:
- How many mortgaged properties you have
- How many properties you have mortgaged with other lenders
- How many properties you have mortgaged with them
- What the overall mortgage debt or loan to value is across your portfolio
If you think this will be an issue, get in touch with a broker who will guide you towards the lenders that will consider your application. Remember, some of our clients have 100+ buy to let properties and are still purchasing more; it’s just a matter of using suitable lenders.
Limited company structures
How to structure your SPV limited company is a complex issue. As a rule, most lenders accept a maximum of four directors and shareholders in a company structure. However, some lenders will accept additional shareholders if their shares are below 20%, and some lenders can underwrite larger or more complex setups.
If you’re concerned about just one of the factors mentioned above, it’s likely it can easily be resolved by finding the right lender. However, when there’s a combination of complexities across several criteria, that’s when securing a mortgage becomes more challenging – but not necessarily impossible! The best thing to do is give me a call to talk things through and go from there. Here at Mortgages for Business, we’re used to dealing with all kinds of complexities, so if there’s a solution out there, we’re well equipped to find it for you!
Get in touch with me, Adam Henderson, on 01732 471658 or email me, email@example.com, and I’ll be happy to help.