We had so many brilliant questions from landlords for MFB Live! we wanted to make sure they all got answered by our expert consultants.
Q: I have recently set up an SPV for a buy to let property which I have purchased. I already own another buy to let property in my personal name and am interested to know the pros and cons of moving it into the limited company.
A: To transfer your personally owned buy to let property into your limited company, you have to complete a full sale and purchase transaction. Helpfully, lenders are happy for you to use existing equity in the property as a deposit (treated as a directors’ loan). Any investments you make into the limited company can be drawn back out if classed as a directors’ loan in your records. As the main incentives for investing in property via limited company are usually tax-related, I would recommend that you speak to a professional tax advisor to make sure this is going to be the most financially efficient investment method for you.
For more information about “transferring” a personally owned property into a limited company, we have a really helpful blog on the topic here. Of course, if you have any further questions, do not hesitate to contact me.
Q: In the current circumstances, do you have to have an HMO licence in place to apply for a buy to let mortgage or can you apply having submitted your HMO licence application?
A: Generally, you can apply for lending if you have submitted your HMO licence application, as most lenders will accept a copy of the application to complete their underwriting. It’s worth mentioning that while many lenders withdrew HMO mortgage rates during the lockdown, there’s now a good choice of products and it’s increasing all the time!
Q: I have a third floor flat due for remortgage in a 100-year-old stone-built building. The property was converted into five flats in 1989 and has no cladding. Will I be able to change mortgage provider even if I don’t have an EWS1 certificate?
A: As long as the lender’s valuer comments that there is no cladding or that the external wall system is in order, there should be no issues in refinancing this property.
Q: What’s the difference between short-term let and holiday let agreements in regards to mortgages? Is there a specific market for short-term lets (five days to three months), and if so, what would the current rate be for a 75% loan to value mortgage?
A: Holiday let mortgages can either be written with Airbnb lenders or commercial lenders. Airbnb lenders tend to allow for the very short-term let agreements I think you’re referring to; however, there are fewer options in this market. Standard holiday let mortgages are easier to acquire, but we understand this isn’t always the most suitable option.
In the current market, the maximum loan to value is around 70% with rates starting from 3.74%.*
Q: We’re looking to purchase an empty semi-commercial property with plans to convert the above residential space into four flats. I have some refurbishment experience and would be looking for 70% of the gross development value; the property is around £250,000 to purchase.
A: If you’re after a commercial refurbishment loan, you will generally need experience in the sector and will be required to evidence some recently completed projects. If you have less than three provable projects under your belt, then we usually take these forward on a commercial bridging basis. Commercial bridging rates start from 0.90%* to around 1.25%* per month, and 65-70%* loan to value is the maximum at the moment. You will need to cover the costs of the refurbishment and exit the bridging finance with either a multi-unit loan or sale of the property.
Andy Elley: email@example.com | 01732 471644
Q: Where are the current limited company buy to let mortgage rates and where are they likely to go?
A: Throughout lockdown, lenders had to manage the amount of new business they attracted as like many of us they had to adapt to a new way of working. Initially, they were dealing with all the Mortgage Payment Holiday applications and then reinventing their processes to work around the fact that valuers were no longer allowed to go out to properties. The second thing that happened was the Capital markets closed, meaning there was less money available to lend out to people. The best way to manage the volume of incoming applications, without completely removing yourself from the market, is to up mortgage interests rates; and that’s exactly what they did!
Now things have returned to a form of pre-COVID normality, buy to let mortgage interest rates are starting to come down. I don’t think they’ll come down much further, due to the cost of funds vs the margin the lenders are charging. At the end of the day they need to make a profit, so I think we are near the bottom of the reduction curve.
Q: What are the criteria for lending on newly formed limited companies?
A: One of the great things about setting up a limited company is you can borrow through it the very next day! When lenders underwrite mortgages for limited companies, they will take an unsupported personal guarantee from either the shareholders and directors or just the director(s). In this regard, it’s much the same as when applying for a mortgage in your personal name, as although the lender is underwriting the limited company, you are ultimately who the lender is hanging their hat on.
Income requirements are also usually similar to that of individual applications. Some lenders require a minimum of £25,000 per year, and others just need you to have an income that will satisfy their affordability calculations (you can read more on limited company income requirements here). Often, the affordability calculations for limited company buy to let mortgages are more generous than applying in your personal name due to the tax benefits of investing this way, which means you can potentially borrow more.
Some lenders prefer you to be a homeowner; however, some lenders can accommodate you even if you’re not. Compared to five years ago, there are now few differences between individual and limited company mortgage lender criteria.
Q: If my property investment partner moves abroad, what are the implications/consequences for our existing mortgages and on future applications?
A: The first thing you need to do is notify your existing lender of the new address. It shouldn’t have an impact on your existing mortgage agreements. I’ve certainly never heard of a lender saying “if you’re going overseas we want our money back”, so don’t worry.
In terms of future borrowing, when there is one applicant “on-shore” and another “off-shore”, lenders will generally treat the application as an ex-pat mortgage. Unfortunately, the lender appetite for ex-pat mortgages isn’t fantastic, so there are fewer lenders in this market and therefore, higher rates. A possible way to avoid this issue is to have the remaining person “on-shore” as the company director and the now ex-pat party as a shareholder. When it comes to underwriting personal guarantees, you may find lenders don’t want to underwrite the ex-pat shareholder, only the “on-shore” director (and possibly majority shareholder) and would therefore not treat it as an ex-pat application. I’d recommend speaking to your broker about which lenders will consider this and how to structure your limited company accordingly.
Q: Considering the fallout from COVID-19, which form of long-term property investment is likely to do better: commercial or residential?
A: I’m confident in the residential buy to let space, mainly due to the overall shortage of housing in the UK. On the whole, it’s not easy for first-time buyers to get onto the property ladder, and at the moment lenders have scaled back on high loan to value products, making it even more difficult. The benefit of this to landlords is that it keeps rental demand high. In the future, I can’t see this demand waning at all.
In terms of commercial property, it’s a slightly different story. COVID has changed people’s behaviours: with so many now working from home, offices are less occupied, and many of us are still opting to do the majority of our shopping online, meaning that many retail units are becoming vacant. Similarly, cafes, bars and leisure facilities have seen a real downturn as well. I think it’s difficult to call the very long-term impact of COVID in this investment sector; however, I would be slightly cautious about investing here at the moment. It’s certainly not all doom and gloom; I think that you need to really consider which commercial property sector you want to invest in and the type of tenant that property will attract and whether that business will stand up over the next 18 months of uncertainty we’re likely to see.
Jeni Browne: firstname.lastname@example.org | 01732 471647
Q: I am approaching retirement in the next few years and am interested in finding out how I can use my pensions to invest in rental properties. I believe that SSAS pensions can only be invested in a property development company, but would appreciate suggestions as to whether there are any legitimate ways to employ pension funds to invest in rental properties through a company?
A: The scheme can purchase commercial property as well as commercial and agricultural land. Once purchased the property or land can be let to your company or third party.
However, as you are no doubt aware, the SSAS pensions are subject to the pension rules and regulations of HMRC SSAS rules. With this in mind, it is vitally important that the members of these schemes have the knowledge and guidance on the rules; what is and isn’t permissible and the potential consequences of a breach of the rules.
Disappointingly, whilst most property investors concentrate on residential property, it is important to note that under HMRC rules the direct purchase of residential property by a pension fund is prohibited. This includes single lets, HMO’s, serviced accommodation and holiday lets. Some investors believe that if the asset is bought through a limited company, or run as a commercial enterprise, that this is sufficient to classify the asset as a commercial entity. Unfortunately, when it comes to pension purchases, HMRC does not share this view. Regardless of how the property was purchased or how it is run, HMRC classifies a property as a residential asset if:
- The building or structure is used or suitable for use as a dwelling
- Any related land that is wholly or partly the garden for the building or structure
- Any related land that is wholly or partly grounds for the residential property and which is used or intended for use for a purpose connected with the enjoyment of the building
- Any building or structure on any such related land
- Any building specified in Regulations as residential property
I trust you found the above of some help. If you wish to investigate your options further, I would be happy to assist. Still, a good port of call would be initially to contact a pension’s administrator to ensure the structure you are looking at, and the asset falls within HMRC rules.
Paul Keddy: email@example.com | 01732 471655
If you missed September’s MFB Live! or want to watch it again, you can do so on our YouTube Channel, here. If you have your own buy to let mortgage question, please do not hesitate to contact our expert team on 0345 345 6788 or email firstname.lastname@example.org.
*As of 7th October 2020