Buy-to-Let Mortgages for Limited Companies

If you are considering getting a Mortgage for your Ltd. company to hold your buy-to-let, this blog will help you to explain your options.

Company buy-to-let mortgage

You may well be familiar with the term residential mortgage, but if you wish to hold your buy-to-let in the Limited Company and you require a mortgage for it, the type of mortgage you need is called Company Buy-to-Let (CBTL) Company Buy to Let is a loan secured against the property. You are able to mortgage anything between 75%-80% maximum. Usually, lenders require a deposit of 20%-25% of the value of property.

Financing options

The majority of property developers will want some type of financing to assist them in either entering the market or expanding their property portfolio. And fortunately, there are ample solutions available to meet the needs of the majority of individuals/companies.

We will be looking at nine different types of property development financing you can use-

1. High street lenders

These are your basic mortgages that are accessible from the majority of banks. An application is evaluated based on your ability to repay the loan and the market value of the property you intend to purchase. This is available to first time buyers, Buy-to-Let investors, raising finance for extensions.

2. Second charge mortgages

Second charge mortgages, also known as second mortgages, secured mortgages, or second charge loans, are essentially loan expansions to your existing loan. Rather than remortgaging to free up funds for home improvements or additions, you can take out a second charge mortgage. They can be beneficial for individuals whose circumstances have changed, such as being self-employed or running a small business.

3. Commercial mortgages

A commercial mortgage is identical to a high street mortgage, except that the security for the loan must be classified as a commercial property. This comprises retail stores, factories, and offices. They also differ in that, rather than considering your personal income throughout the application process, the lender is more likely to consider your business income and assets when considering your ability to repay.

4. Buy-to-let mortgages

Property developers typically pursue one of two paths: renovating properties to sell or buying properties to rent. If you are planning to purchase a property to rent, you’ll require a buy-to-let mortgage. They differ from residential mortgages as their interest rates are slightly higher, a larger deposit is required, and certain additional fees apply.

5. Residential bridging loans

Residential bridging loans are frequently used by property developers, since they can be used in a variety of situations where a high street mortgage would not be appropriate. They are short-term, interest-only loans that can be agreed upon quite quickly. They are based on the property’s valuation and your ability to repay the loan – or on your exit strategy. They are frequently used by property developers during the purchasing and selling of properties, auctions, and renovation work.

6. Commercial bridging loans

Commercial bridging loans, similar to residential bridging loans, are intended to bridge a funding gap associated with the purchase or renovation of a commercial property.In this instance, a commercial property is defined as one that derives 40% of its value from commercial activities. This could be a shop with a flat above or a brownfield property that has not yet received planning approval. They can also be used to assist in funding the expansion of a small business through the purchase of new premises.

7. Bridge-to-let

Another type of bridging loan, a bridge-to-let loan is designed for those interested in buying rental properties. In these instances, the exit strategy is typically refinancing the loan onto a Buy-to-Let mortgage. They are suitable for commercial as well as residential properties. Your application would be based on conditions to achieve 100% rental coverage.

8. HMO

HMO’s are frequently viewed as more risky than normal BTLs. Due to the fact that HMO tenants are unrelated; they tend to move on more rapidly, resulting in a greater chance of voids or unpaid rentals. Additionally, they are less committed to the property as a home, which means they assume less responsibility for its care and upkeep. Additionally, any issues or damage are more difficult to attribute to a particular tenant.

Thus, HMO lenders will examine the impact of these increased risks on your capacity to repay the mortgage, which is reflected in interest rates. The actual rate will vary according to the lender’s willingness to evaluate your unique circumstances: your expertise, the number of bedrooms in the home, and its location.

9. Development finance

Property development finance is a short-term loan used to fund residential property developments, such as construction projects. It is often advanced as a loan for land acquisition and a loan in stage payments for development costs associated with transforming a property into flats or HMO’s.

Things to consider when choosing the right financing option

Personal savings

To begin, if you are fortunate enough to have sufficient resources that will cover the costs of getting your development project off the ground, your first port of call should be cash from your savings.

Remortgaging

Unfortunately, such personal financial reserves are extremely unusual, and property investors are frequently required to seek alternative sources of funding, the most typical of which being a re-mortgage on an existing property. However, a re-mortgage should only be undertaken following extensive research, property valuations, and detailed project appraisals.

Remortgaging is often reserved for property investors who have built a significant amount of equity in their home or other property through historic capital gains. However, we strongly advise you to seek expert guidance before proceeding with this alternative. Stability is the key... do not gamble with your luck.

Further advance

If remortgaging is not a viable option for you, another option, which will need communication with your mortgage provider, is to examine the “further advance” option. The further advance option is exactly what the name implies - it allows you to request an advance from your lender.

Other costs

Beside the monthly interest cost, you may also like to incorporate additional costs in your business plan, these consist of:

1. Arrangement fees :
These are typically charged at 1-2 percent of the loan amount for loans up to £1 million. Small balance mortgages may have higher arrangement fees.

2. Valuation fees:
Valuation reports for commercial purchases are often more stringent than residential properties, so they can be more expensive. The exact amount payable is determined on a case-by-case basis, and, unlike with residential mortgages, payment is not usually required in advance.

3. Broker fees:
Most brokers charge about 1% of the loan amount as a fee for arranging the transaction but you must be careful of deals with high upfront fees. Brokers should only be paid if you get a mortgage, and the ones we work with, will refund any advance fees if they can’t get you one.

4. Legal fees:
Borrowers are normally responsible for both their own and the lender’s legal fees, and the total cost may vary.

Deposit

Despite the loan being secured, deposits are still mandatory. However, the amount you must pay will vary greatly depending on your circumstances and needs. The majority of commercial mortgages require a deposit of 25-40%. If you want a commercial investment mortgage, you’ll need to put down a slightly larger deposit than if you’re planning to occupy the property yourself.

Although it is uncommon, lenders may agree to issue a commercial mortgage without requiring a deposit in some cases. In this case, you will usually be required to offer another property as collateral for the loan.

Length of mortgage

Depending on the type of financing option selected, typically commercial mortgages are between 1– 25 years.

Terms are frequently determined by the size and value of the property, as well as the amount of available deposit, with many lenders offering variable-rate commercial mortgages. You must keep an eye out for complex clauses or directives that pose greater risks to the borrower. If you still have a query or are unsure about the wordings of the contract, dns accountants will be more than happy to help you and make you understand the contract details.

What does lenders look for/Eligibility criteria – be prepared

Ensure that all of your paperwork is up to date, as your company will be subjected to a series of checks by lenders to determine whether you are eligible for a commercial mortgage loan. They may examine your –

1. Cash flow and debts,

2. Projected future income,

3. Deposit size

4. Any rental income generated by the property you wish to purchase.

5. Property Portfolio and ability to keep repayments in the event of any rental voids.

you’ll have a better understanding of the commercial mortgage rates available once you know the results of these checks. If you have a poor credit rating, you will still be able to obtain a commercial mortgage, but you will be charged a higher interest rate. If you’ve only been in business for a short time, you could be asked to have a personal guarantee, which means you’ll be personally liable for loan repayment.

dns can help you no matter what your situation is. Well conduct a thorough assessment of your needs to find you a business mortgage that is right for you.

In case you need specialist advice on "Commercial loans for property investment", kindly book a call with us at https://www.dnsassociates.co.uk/free-consultation.

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