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Limited Company Mortgage | Mortgage Understanding Deposits

Limited company mortgage

Limited company mortgage

 

Liz Syms, CEO of Connect for Intermediaries, emphasises understanding deposits is crucial for limited company mortgage completions. In the ever-evolving landscape of buy-to-let investments, advisers spend substantial time grasping myriad changes. This ensures they can continue offering prudent guidance to their clients.

Liz Syms
Liz Syms, CEO and Founder of Connect

One significant change is the alteration in mortgage interest tax relief. This has prompted a shift towards limited companies for buy-to-let ventures. Despite its importance, many investors remain oblivious to its implications. As the phased implementation unfolds, some investors face higher tax bills. Consequently, they seek counsel from mortgage advisers to navigate their options.

Traditionally, there exists a consensus within the market. Advisers should avoid delving into tax advice and encourage clients to seek specialized guidance from tax advisers. However, when clients transition property portfolios to limited company structures, advisers need in-depth knowledge.

Advisers are increasingly called upon to stay abreast of intricate tax implications. They must provide nuanced insights into the potential benefits and pitfalls of the transition. As the financial landscape evolves, advisers’ ability to impart specialised knowledge is paramount. This ensures clients are guided through these intricate decisions effectively.

Limited Company Mortgage | Key Questions

First, determine if the client prefers an existing trading business or a new special purpose vehicle (SPV). Understanding the differences between them is crucial.

Identifying Suitable Lenders

Find out which lenders accept a trading business and the acceptable SIC codes for an SPV. Knowing if the lender requires a personal guarantee, debenture, or floating charge is also essential.

Clarifying Financial Terms

Explain these financial terms clearly to the client. This is part of the advisory process. Another key aspect is understanding who will be underwritten—directors, majority shareholders, or all shareholders.

Funding the Deposit

Consider how the deposit will be funded, especially when transferring property from individual names to a limited company. This process is not just a refinance but a sale and purchase transaction. The limited company must have sufficient funds for the deposit.

Managing Multiple Property Transfers

While securing funds for one property may be straightforward, it becomes complex with multiple transfers. Assess if the lender accepts concessionary purchases or director’s loans to the company.

Exploring Director’s Loans

If a director’s loan is accepted, check if the lender allows it as a paper transaction instead of a cash transfer. This additional consideration is part of a comprehensive understanding of the limited company mortgage landscape. This approach ensures informed decisions and effective client communication.

Limited Company Mortgage | Majority declined by deposits

It is crucial to effectively communicate the strategy for handling deposits. Clarity is essential when presenting an application to the lender’s underwriter. The underwriter’s comprehension and approval depend on a clear explanation of deposit management.

Recently, a lender highlighted the importance of this step. After reviewing many declined applications, they found that 60% were rejected due to misinterpretations in deposit details. With correct understanding, many of these applications could have succeeded.

Taking time to delve deeply into these intricacies positions advisers strategically. By understanding deposit-related nuances, advisers enhance their ability to provide accurate recommendations. This helps mitigate the risk of future complaints. Such diligence safeguards against potential pitfalls and opens 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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