Over the last fortnight I’ve been looking into Special Purpose Vehicles and when to use them, which now leads us to consider how to raise finance for our limited companies – in particular, for buy to let properties.

As such, let’s begin by thinking about what an SPV is in the eyes of the bank. Quite simply, the SPV is going to be a limited company (or perhaps an LLP or partnership – depending on your circumstances), which has been set up purely for the purpose of owning the buy to let property.

So, thinking in these terms, what the bank will want to see is a limited company that will only be used for this function. To give an example, if you are an IT Project Manager and have an existing limited company that you use for your IT services, you would be advised to set up a separate entity for buying and holding your properties.

The reason behind this is that the bank would prefer you to keep your activities separate. From their perspective, they will be wary of what could happen to your existing business; they will be wary of how many debtors you’ve got, whether you clients are paying on time, whether you owe money through that business and if there are any other liabilities attached to it.  And whilst they could, (and would) do a check on the business, for the bank it makes sense to keep things as simple as possible.

Essentially, the bank will have two concerns. Firstly, that you can pay the interest on the loan, and secondly, if you ever get into financial trouble and they had to repossess, that could they take the property back off you without a problem.

When assessing your application, what the bank will look at is YOU. As a new limited company, they will be unable to look back over the last three years of company accounts, etc., so instead, they will look at your individual circumstances.  They will consider your SA302 or Personal Tax Account (PTA); will look at your personal bank statements, income, and whether you own a home.

Most lenders will typically want applicants to have a minimum income per year of at least £25,000 – but there are ways and means of getting around this if you don’t fall into this wage bracket. (For example, you could make a joint application on a mortgage with a JV partner; set up an SPV and split the shares as agreed).

Despite the general consensus that it’s hard to get buy to let finance for a limited company, it really isn’t very difficult at all. I’ve been buying my buy to let properties through a limited company for over 20 years now, and I am yet to have a problem. What’s more there are plenty of lenders out there that will lend through limited companies and this number is only going to grow.

Off the top of my head I can think of half a dozen or more… Paragon, Shawbrook, Aldermore, Precise, Fleet Mortgages, Kent Reliance, etc., and with The Mortgage Works jumping on the band wagon too, you can be more or less assured that their competitors will follow.

Let’s also consider the trend from recent years. In 2012, there were only about 30 products for limited companies. By the beginning of 2017, there were around 200 products; and by mid last year, 312 mortgage products. As such, in 2018, there must surely be 400 or 500 products out there for investors that want to buy their buy to lets through limited companies. There are plenty of both lenders and products so with a good broker, finding and obtaining the right finance shouldn’t be a problem.

As a final thought, if you’re concerned that the rates are now more expensive than before, I would look at it like this. They are only marginally greater – in fact, if the truth be told they are not much higher than for a normal individual who’s taking on a buy to let in their own name) – and as more lenders come into the market for limited companies, this is likely to improve. But for the time being, whatever you lose on paying extra interest, you should gain back on tax anyway.

Here’s to successful property investing

Peter Jones B.Sc FRICS

By the way, I’ve rewritten and updated my best selling eBook, The Successful Property Investor’s Strategy Workshop, which is an account of how I put together my multi-property portfolio, starting from scratch and with no money of my own, and how you can do the same. For more details please go to ThePropertyTeacher.co.uk

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