MFB Live! Buy to Let Landlord Q&A March 2021

We had so many brilliant questions from landlords for MFB Live! that we wanted to make sure they all got answered by our expert consultants.

Question: Can I have multiple bridging loans going through at the same time buying in a limited company name?

There’s no reason you can’t have multiple bridging loans going through simultaneously; the lenders don’t restrict this. However, there is an issue of cost as bridging loans are more expensive than traditional mortgages. You’d need to consider whether you could afford to run two or more bridging loans parallel with each other, but there’s no criteria reason why you couldn’t.

 

Question: Given the current climate on the high street, I am receiving requests from my tenants to turn their A1 retail units into takeaways. Given the takeaway would be on the ground floor of a building I own which has several mortgaged residential units above, is this an attractive option or something that will limit my options in terms of freehold and mortgaging in the future?

Securing a buy to let mortgage for residential property above commercial property can be tricky, especially if the commercial unit’s occupation is likely to be noisy, emit smells, or result in people congregating there in the evening. Certainly, there are lenders in this market that can help you, but rates may be higher or loan to value restricted. To answer your question, yes, it could be a sticking point. I would recommend getting a broker to quote you some rates so you can weigh up the financial implications.

 

Question: What is the big advantage of moving buy to let property from personal named into limited companies?

The primary reason we’re seeing such a swing towards limited company lending is all about tax. For those who’s gross income (all employed or self-employed income plus rental income) pushes them into the higher tax bracket, limited company investment can be more tax efficient. If you’re considering limited company investment, you must seek professional tax advice to ensure it’s the most cost-effective structure for you. While we can give financial advice, we are not qualified to issue tax advice.

While tax is undeniably the motivation for most investors, it’s not the only reason you’d consider a limited company structure. 

Firstly, limited company investment structures offer more flexibility in terms of ownership. For example, if you and your partner owned property via a limited company and wanted to bring your children into the mix, you could issue shares to them. If you and your partner owned the property in your personal names, this would be much more difficult to do. A lot of people like this element of flexibility and how it aids legacy planning.

Secondly, it can be a more tax-efficient way to move money between companies. For example, if your existing company had built up enough cash for a buy to let deposit, you have three options:

a) Purchase through the existing company. Possible, but you may be classed as a trading company which will significantly restrict your lender and mortgage options. 

b) Withdraw the money from your company and purchase in your personal name. You may find that withdrawing the money triggers a tax bill, so again you’ll need to speak to a tax adviser about what’s the most efficient option here.

c) Set up a new limited company solely for property investment. Structured correctly, you can move money from the trading company to the new company without any tax implications. This option is becoming increasingly popular due to its efficiency.

There are many ways to approach this, and as a mortgage broker, we can help with whichever option you and your tax adviser decide is the most suitable for your circumstances.

You can read more about limited company investment in our blog, here. 

 

Question: Finance via bridging loan, how soon do you have to pay it back, and what are the costs? Especially if you are relying on remortgaging the property after six months, is that still possible?

Traditionally, bridging loans have terms up to 12 months, although there are options up to 18 and even 24 months. Essentially, depending on why you’re using bridging finance, you can have a suitable amount of time available before you need to pay it back. Do keep in mind that bridging rates are generally more expensive than traditional buy to let mortgage finance, so you don’t want to be on it any longer than you need to. 

With regard to remortgaging at or after six months, there is a misconception that you cannot refinance before six months. Certainly, some lenders require you to have owned a property for six months before they’ll refinance it for you, but many don’t. So you shouldn’t have an issue here. 

 

Question: What is the best way from the perspective of finance and then refinance to get all your original money out, is the best way to buy a block of 16 flats, freehold, on one register?

I admit I don’t entirely understand the question here, but I think I know what you’re getting at, so I’ll give it a try.

When refinancing a block of 16 flats, you can either retain the flats on one freehold or split individual units onto their own leases (not quite as simple as it sounds!).

The benefit of individual leases is that the individual flats’ combined value will be higher than the value of the single freehold of the block. A block value is always discounted by 10-20% to account for the lender’s costs splitting the titles to sell the units in the event of repossession.

So, with 16 leasehold flats, you may well be able to borrow more and potentially secure lower rates (multi-units attract higher rates than single units). However, there are some downsides to consider here. Firstly, you won’t be able to finance all 16 separate units with the same lender as most lenders cap block exposure at 20-25%. For a block of 16, you’d be looking at eight different lenders to finance them all, which is a lot of administrative costs. There will also be a limited number of lenders open to this because a) you own all the other leaseholds and b) control the freehold.

As I said, if you were to remortgage the freehold as a multi-unit freehold block, you’ll end up with a lower valuation. However, with one application, one mortgage, one set of administrative costs, and one set of legal fees, it could potentially be more cost-effective in the long run.

If you’d like to compare costs, get in touch, and we can run up some illustrations for you to compare.

 

Question: If I have two buy to let properties, should I put them in a limited company?

Unfortunately, this ultimately depends on your tax position and thus, you need to seek a professional tax adviser to determine what the best option for you is here. We can help draw up comparisons between personal and limited company mortgages costs, but we are not qualified to offer tax advice.

- Jeni Browne: jenib@mortgagesforbusiness.co.uk | 01732 471647

 

Question: Is refinancing at 70+ a problem?

Not a problem at all! We have lenders that accept applications up to the age of 80, sometimes 85. If you’re having trouble, do get in touch! 

 

Question: My only income is from a privately held property portfolio. What finance options are available for this situation? Thanks

We have access to many lenders that are entirely comfortable with ‘professional landlords’ like yourself. There are also several lenders without a minimum income requirement, so as long as there is an income, they’ll consider your application. 

 

Question: Should you buy a leasehold flat with 68 years left when the vendor doesn’t have the funds to extend the lease before sale?

An interesting one – so basically, it depends if it’s worth buying, having factored in the additional cost of the lease extension. Some flats absolutely will be worth continuing with, especially those with strong rental yield and/or capital growth potential.

Ideally, you’d negotiate with the vendor to have the costs involved deducted from the purchase price to help offset the expense. 

In terms of financing the purchase, some lenders will agree to it as long as a lease extension (which meets the lease length criteria) is in place by completion. You need to be upfront with the lender about the issue; otherwise, the valuer will use the current lease length in their calculations, potentially resulting in a declined application if it doesn’t meet requirements. 

In this situation, the lender will not release funds until the lease extension is in place, so there’s the potential for some delays.

Another option here is to use bridging finance to purchase the property and potentially borrow for the lease extension cost too. Once the extension is in place, you can refinance onto a buy to let mortgage. I would certainly speak to a broker about your options here.

- James Powell, jamesp@mortgagesforbusiness.co.uk | 01732 471651

 

Question: Are there any lenders who lend money as an umbrella amount and allow investors to roll buying and selling within the umbrella amount... i.e. secured on a basket of properties rather than each property individually?

I don’t believe what you appear to be seeking exists. No lender will offer finance secured on a property portfolio with the ability for those properties to change freely. The reason being that the properties within a portfolio are the lender’s security and cannot change without the required legal paperwork.

However, I believe there are alternative solutions to consider here.

You could have a portfolio mortgage across several properties. If you have enough equity within that portfolio, you could capital raise from it and give yourself a cash pot to purchase further buy to let investments.

Another option would be with one lender that offers a forward funding facility. This means that the lender will underwrite a pre-determined loan amount for you before you find a property. Therefore, you get a mortgage offer subject to valuation once you’ve found a suitable property. You can only use this for single unit property purchases.

I hope this helps answer your question?

 

Got a question for our expert consultants? Call 0345 345 6788 or email enquiry@mortgagesforbusiness.co.uk today!

10th March 2021