Exploring the limited company options
In recent years, the buy-to-let sector has witnessed significant tax and regulatory changes that have brought limited company lending into the spotlight. Landlords and advisers alike have become increasingly aware of the potential benefits of adopting limited company status.
Lenders have responded to this growing demand by adapting their offerings to cater to the needs of a diverse range of landlords.
Due to some well-publicised tax and regulatory changes across the buy-to-let sector in recent years, awareness of limited company lending has risen greatly within the landlord and adviser community.
Whilst the merits of adopting a limited company status will vary according to individual demands, aspirations and scenarios, many lenders have adapted and continue to adapt their propositions to service a huge growth in demand as this form of lending continues to attract a variety of landlords.
This is another compelling motive for exploring the limited company options for the betterment of mortgage advisory services.
A Decade of Unprecedented Growth
Exploring the limited company options has been particularly evident over the past five years. Between the beginning of 2016 and the end of 2020, Hamptons reported that more companies were set up to hold buy-to-let properties than in the preceding 50 years combined.
Companies set up to hold buy-to-let properties were even suggested to be the second most common company founded during 2020, with companies selling goods online or by mail order unsurprisingly landing the top spot.
This meant that at the end of 2020, 228,743 buy-to-let companies were up and running an all-time record.
Ongoing Interest and Focus
When we delved into the subject of “Exploring The Limited Company Options,” these statistics were indeed remarkable. While we don’t have access to the 2021 figures at the moment, one can only speculate that this growth trend is continuing.
From a CHL perspective, they certainly see heightened interest from landlords regarding limited company options. This will remain an area of intense focus for us moving forward.
Practical Examples and Lender Criteria
Now that we’ve established the growing significance of limited company lending in the buy-to-let sector let’s explore some practical examples of how this type of lending works and the key criteria that lenders may consider when evaluating such applications.
- Inter-Company Loans: Exploring the limited company options: In some cases, a limited company, contractor, or self-employed individual may seek to purchase a buy-to-let property using funds accumulated in their primary company.
- The first step involves setting up a special purpose vehicle (SPV) for the buy-to-let purchase and then arranging an inter-company loan for use as a deposit. It’s worth noting that not all lenders accept inter-company loans, but many specialist lenders do.
- Typically, confirmation from the client’s accountant may be required to ensure the loan won’t impact the lending company’s future trading.
- Personal Guarantees: Exploring the limited company options: When purchasing property through an SPV, it is often assumed that directors and shareholders must sign personal guarantees. However, this isn’t always the case, and options are available for clients who may be uncomfortable with providing personal guarantees. The requirement for personal guarantees varies among lenders.
Navigating Limited Company Options | Exploring the limited company options
These examples of exploring the limited company options emphasise the importance of intermediaries forging close relationships with specialist lending partners and understanding how to effectively present limited company options to their clients.
- Staying Informed and Adapting: To succeed in this evolving landscape, mortgage advisers must stay well-informed about the latest developments in limited company lending. The lending market is dynamic, and criteria can change rapidly.
- Advisers can ensure they are always equipped with the most up-to-date information by keeping up with industry news, attending relevant training, and actively engaging with lending partners.
- Tailoring Solutions: Each client’s financial situation and goals are unique. Advisers should be prepared to tailor their advice and solutions to match their clients’ specific needs. This level of customisation demonstrates expertise and builds trust with clients, who will appreciate the effort taken to address their individual circumstances.
- Providing Clarity: Complex financial matters like limited company lending can often appear daunting to clients. The adviser’s role is to clarify and simplify these concepts for their clients. Using plain language, visual aids, or illustrative examples can go a long way in ensuring that clients fully comprehend the options presented to them.
- Addressing Concerns: Clients may have concerns or reservations about limited company options, such as inter-company loans or personal guarantees. Advisers should be prepared to address these concerns patiently and comprehensively. Providing clear explanations of the benefits and risks associated with each option can help clients make informed decisions.
- Staying Proactive: Advisers should not view their role as limited to the initial mortgage transaction. Instead, they should adopt a proactive approach by offering regular reviews to ensure that the chosen limited company structure aligns with the client’s financial goals.
- Advisers can also inform clients about any changes in the lending landscape that may impact their mortgage arrangements.
When “Exploring The Limited Company Options”, navigating limited company options in the mortgage market requires a combination of industry knowledge, adaptability, client-focused solutions, and effective communication.
By mastering these elements, mortgage advisers can provide invaluable guidance to clients seeking to maximise limited company lending opportunities.
Andy Valvona, National Account Manager, CHL Mortgages