Many landlords are now becoming more comfortable with buy to let borrowing via a limited company including the few additional hurdles this brings. However there is still a perception that the process is complicated and harder to get agreed but this is not always the case, as Gary McKenna, Consultant Mortgage Broker explains.
Whilst it’s my job to have a detailed knowledge of the various lenders’ borrowing criteria for buy to let lending via a limited company, I thought I’d share with you the most common areas of concern I come across on a regular basis. Hopefully, I’ll be able to put your mind at rest...
Using a new limited company to get a buy to let mortgage
A new company is not a problem, as long as it is set up as a Special Purpose Vehicle (SPV) limited company with correct SIC code, then lenders do not have a problem. A point which can be daunting is knowing which lenders will want to take fixed charge over the property supported by floating charge over the company or debenture. Debentures can restrict further lending or hinder borrowing if a lender wants a debenture.
Luckily most lenders have become a bit more savvy with debentures and realise this restricts the client hence it is becoming less common in SPV buy to let mortgage market.
More reading on this particular topic:
In general lenders want to see proof of income over £25k per annum. This can be salary, dividends, property income or combination of all of them. Different lenders will accept different income amounts and sources so all circumstances can be accommodated – usually! New companies won’t have any trading history or income so lenders will base their underwriting against your personal income.
If you want to jump straight into the HMO market without experience of being a landlord, your borrowing options will be restricted. The same goes for other, more complex properties like blocks of flats (often referred to a multi-unit freehold blocks), mixed used and commercial premises. Don’t get me wrong, it’s not impossible to find a lender but your application will need to be stronger in other areas to compensate.
I wrote a blog on limited company deposits including directors’ loans, intercompany loans, gifted deposits, etc. This is an area which it gets a little complicated as to what is acceptable or not but the fundamentals are as long as you can provide evidence of the source of the funds and they are legitimate then lenders will be sensible.
A common misconception is you cannot raise money from one property to form the deposit for a BTL. Wrong! This is actually one of the most common approaches to raising deposit monies either against your home or other BTL properties. Evidence of the source of funds can very easily be provided, usually with bank statements showing the deposit from another lender.
I’m usually pretty happy when someone tells me they are buying a 3-bed semi in a good location which will be let to professional tenant as this is pretty much the simplest property to deal with. In their own right, flats above commercial premises, multi-units and ex-local authority properties are also fine although choosing the right lender happens by a process of elimination when combined with deposit, income, experience and company set up.
Other criteria points which shape the choice of lender include: number of properties owned (both personally and in a limited company structure); number of applicants (max 4 directors); shareholders (sometimes people like to add children as shareholders which some lenders don’t like); credit history which is same as personal lending; and, property location.
Borrowing criterion on their own are easily dealt with. It’s when the combination of criteria start to build that this shapes which lenders will be able to do the deal. Only then can we talk about getting you the most competitive option.
The good news is whilst you are describing your requirements and circumstances during our initial conversation, we will be carrying out this process of elimination in our heads and can usually confirm there and then what can be done and at what rate. So, although I hope you find the above useful, the best advice is give us a call so you don’t have to stress about the process or underwriting.
Gary McKenna has left Mortgages for Business for pastures new. For more information or for any questions relating to this blog, please contact the Buy to Let Team on 0345 345 6788, where one of our consultant mortgage brokers will be happy to assist.