As you would expect during the holiday season, our deal placement team is quieter than usual. But that does not mean we are not busy.
As anticipated, there has been a big increase in enquiries about buy-to-let mortgages for limited companies. Brokers who do not usually handle this type of deal have been asking us for help in understanding these products and their availability. For those of you yet to receive such an enquiry, here is an overview to help you understand the niche sector.
In July, of the 889 buy-to-let products available from main lenders, just over 120 (13 per cent) were suitable for limited company applicants.
I last wrote specifically on limited company buy-to-let mortgages in February 2012. At that time there were just 40 products available from an overall total of 456: less than 9 per cent of the entire market. In my opinion, the latest numbers represent a fairly healthy quantity and dispel the commonly held belief that there is a shortage of these types of products.
Around a third of buy-to-let providers offer products to limited companies, although the majority of these restrict their lending to special-purpose vehicles backed by directors’ personal guarantees. The lenders we mostly deal with for SPVs are:
- Axis Bank
- Fleet Mortgages
- Kent Reliance
- Keystone Buy to Let Mortgages
- Metro Bank
- Norwich & Peterborough
- Paragon Mortgages
- Shawbrook Bank
- State Bank of India
Fewer options are available to limited liability partnerships but, in general, lenders that offer products tend to underwrite using the same principles as for SPVs.
Only a few specialists accept trading limited companies and most of these can be accessed by just a handful of brokers. We tend to use Aldermore Bank, Interbay, Landbay, Metro Bank and Shawbrook Bank.
Products for these applications tend to be underwritten on a much more commercial basis, so expect higher rates and fees, and a longer turnaround time.
Rates and pricing
Both trackers and fixed rates are available. Pricing is a bit higher than for personal applications because assessing cases requires greater skill and more time.
According to our latest Buy to Let Mortgage Costs Index, limited company products are around 0.8 per cent a year more expensive than those priced for individual applicants.
Around half of all products for SPVs are available to 75 per cent LTV, although you can expect better pricing at lower LTVs. There are a few products at 80 per cent LTV and Kent Reliance offers a couple at 85 per cent LTV with rates and fees at the higher end.
Most fees are percentage based ranging from 0.5 to 2.5 per cent, although Paragon and Metro Bank currently offer some rates with no arrangement fees.
In general, SPV applications are processed in the same way as personal ones, albeit most lenders like the directors to have some experience as a landlord even if it is owning only one rental property.
Newly created SPVs (that is, those that do not have any accounts) are not difficult to place because the underwriting is done on the strength of the directors. Cases of first-time landlords with newly created SPVs are much more problematic and, if you are not experienced in this field, it is probably easier to go through a master broker.
Some of the more established lenders only accept two directors on an application because that is all their systems allow. However, the newer entrants tend to accommodate up to four as standard and more if required.
Supporting documentation requirements for SPVs are similar to those for personal borrowers because the application is predominantly written on the strength of the supporting personal guarantees. Obviously, where accounts exist, they are required. Trading limited companies must provide at least two to three years’ successful trading accounts.