Exploring the limited company options
Consequently, lenders have adapted their offerings. They now cater to a diverse range of landlords. The increased demand for limited company lending has driven this adaptation.
The well-publicised tax and regulatory changes have raised awareness, particularly within the landlord and adviser communities. The benefits of adopting limited company status vary, depending on individual demands, aspirations, and scenarios.
Many lenders have adapted their propositions. They continue to adapt to meet the growing demand. This form of lending attracts a variety of landlords. Limited company lending is increasingly popular.
This popularity provides a compelling motive. Exploring limited company options can improve mortgage advisory services. It benefits advisers and landlords alike.
A Decade of Unprecedented Growth
Exploring limited company options has become more evident in the past five years. From 2016 to 2020, Hamptons reported that more companies were established to hold buy-to-let properties than combined in the previous 50 years.
During 2020, companies holding buy-to-let properties were the second most common type of new company. Unsurprisingly, companies selling goods online or by mail order took the top spot.
By the end of 2020, a record 228,743 buy-to-let companies were operational.
Ongoing Interest and Focus
From a CHL perspective, landlords have increased interest in limited company options. This area will remain a key focus for us going forward.
Practical Examples and Lender Criteria
The growing significance of limited company lending in the buy-to-let sector is evident. Let’s explore practical examples of this type of lending and key criteria lenders may consider when evaluating such applications.
Inter-Company Loans: Exploring Limited Company Options
Sometimes, 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. After that, they can arrange an inter-company loan to use as a deposit.
However, not all lenders accept inter-company loans, though many specialist lenders do. Confirmation from the client’s accountant may be required. This ensures the loan won’t impact the lending company’s future trading.
Personal Guarantees: Exploring 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. There are options for clients uncomfortable with providing personal guarantees. The requirement for personal guarantees varies among lenders.
Understanding these aspects can help potential borrowers navigate the complexities of limited company lending in the buy-to-let sector. This insight into inter-company loans and personal guarantees is crucial for making informed decisions.
Navigating Limited Company Options | Exploring the limited company options
Staying Informed and Adapting
To succeed in this evolving landscape, mortgage advisers must stay informed about the latest developments. The lending market is dynamic, and criteria can change rapidly. Advisers can ensure they are equipped with up-to-date information by keeping up with industry news, attending relevant training, and engaging with lending partners.
Tailoring Solutions
Each client’s financial situation and goals are unique. Advisers should tailor their advice and solutions to match their clients’ needs. This level of customisation demonstrates expertise and builds trust with clients, who appreciate the effort taken to address their circumstances.
Providing Clarity
Complex financial matters like limited company lending can seem daunting to clients. Advisers must clarify and simplify these concepts for their clients. Using plain language, visual aids, or examples can help clients fully understand the options presented.
Addressing Concerns
Clients may have concerns about limited company options, such as inter-company loans or personal guarantees. Advisers should address these concerns patiently and comprehensively. Explaining the benefits and risks of each option can help clients make informed decisions.
Staying Proactive
Advisers should not see their role as limited to the initial mortgage transaction. They should adopt a proactive approach by offering regular reviews to ensure the 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 limited company options, navigating 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