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Limited Company Mortgage | Mortgage Understanding Deposits | 2019

Limited company mortgage

Limited company mortgage


Liz Syms, CEO of Connect for Intermediaries, emphasises the crucial role of comprehending deposits in facilitating limited company mortgage completions. In the ever-evolving landscape of buy-to-let investments, advisers find themselves dedicating substantial time to grasp a myriad of changes, ensuring they can continue offering prudent guidance to their clients.

Liz Syms

Liz Syms, CEO and Founder of Connect

One significant change, the alteration in mortgage interest tax relief, has prompted a shift in investor preferences towards opting for limited companies for their buy-to-let ventures. Despite the significance of this change, many investors remain oblivious to its implications. As the phased implementation of the new tax regime unfolds, some investors are now grappling with higher tax bills, leading them to seek counsel from mortgage advisers to navigate their options.

Traditionally, there exists a consensus within the market that advisers should avoid delving into tax advice, instead encouraging clients to seek specialized guidance from tax advisers. However, in cases where clients, armed with informed advice, decide to transition their property portfolios from individual ownership to a limited company structure, advisers find themselves at a juncture where in-depth knowledge of this specific domain becomes imperative.

In light of these developments, advisers are increasingly called upon to stay abreast of the intricate tax implications and provide nuanced insights into the potential benefits and pitfalls associated with the transition to a limited company structure. As the financial landscape continues to evolve, the ability of advisers to navigate and impart specialized knowledge becomes paramount in guiding clients through these intricate decisions.

Limited Company Mortgage | Key Questions

First, it is crucial to ascertain whether the client prefers utilizing an existing trading business or establishing a new special purpose vehicle (SPV) and understand the distinctions between the two.

Identifying which lenders are amenable to a trading business and the acceptable Standard Industrial Classification (SIC) codes for an SPV is imperative. Additionally, determining whether the recommended lender necessitates a personal guarantee, a debenture, or a floating charge is essential.

Deciphering the implications of these financial terms and effectively communicating them to the client is part of the advisory process. Another critical aspect is understanding who will be underwritten—whether it includes solely the directors and majority shareholders or extends to all shareholders.

Beyond this, careful consideration must be given to how the deposit will be funded, especially when moving a property from individual names to a limited company. It is vital to recognize that this process is not a mere refinance but a sale and purchase transaction, requiring the limited company to have adequate funds to cover the deposit.

While securing funds for a single property may be feasible, the complexity increases when dealing with multiple property transfers simultaneously. Assessing whether the contemplated lender accepts concessionary purchases or director’s loans to the company is crucial.

Furthermore, suppose a director’s loan is accepted. In that case, exploring whether the lender allows it to be executed as a paper transaction rather than a physical cash transfer is an additional consideration layer. This multifaceted approach ensures a comprehensive understanding of the limited company mortgage financial landscape, enabling informed decisions and effective client communication.

Limited Company Mortgage | Majority declined by deposits

 Effectively communicating the strategy for handling deposits is crucial when presenting an application to the lender’s underwriter. The underwriter’s comprehension and approval of the application hinge on a clear and comprehensive explanation of deposit management.

connect for intermediariesA recent encounter with a lender highlighted the significance of this step. Upon reviewing many declined applications, the lender revealed that a staggering 60% of them were rejected due to a misinterpretation of the deposit details. With the correct understanding from both the adviser and the underwriter, many of these applications could have progressed successfully.

Taking the time to delve deeply into these intricacies can position advisers strategically. By gaining a thorough understanding of deposit-related nuances, advisers enhance their ability to provide accurate lender recommendations and mitigate the risk of future complaints. This diligence safeguards against potential pitfalls and unlocks substantial opportunities in the limited company mortgage lending landscape.

We’ve come to the end of our discussion on “Limited Company Mortgage” until next time.

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