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A complete guide to:

Buy to Let Mortgages for Limited Companies


Increase in Ltd Co borrowing

Why are more landlords borrowing via Ltd companies? The restriction of tax relief on buy to let mortgage interest From 6 April 2020, if you are a higher or additional tax rate paying landlord and you own your rental property personally, you will not be able to deduct the finance costs from your property income when calculating your taxable profit. Instead, you will receive a basic rate reduction on the finance costs from your income tax liability. Because this is such a game-changer for landlords, the new regime is being phased in over four years on the following basis: Tax year 2017/18: You can deduct 75% of your finance costs from property income. The remaining 25% can be claimed as a basic rate reduction from your income tax liability. Tax year 2018/19: You can deduct 50% of your finance costs from property income. The remaining 50% can be claimed as a basic rate reduction from your income tax liability. Tax year 2019/20: You can deduct 25% of your finance costs from property income. The remaining 75% can be claimed as a basic rate reduction from your income tax liability.

Tax year 2020/21: All financing costs you incur can be claimed as a basic rate reduction from your income tax liability. The changes can adversely affect residential landlords who own buy to let property personally. Many will find their profits after tax reduced, particularly those landlords who are in the higher and additional income tax rate bands. Basic rate tax paying landlords should also beware as the changes could push them into the next tax bracket. The changes do not affect landlords who own their buy to let property in a corporate vehicle because companies pay corporation tax (not income tax) and the rules are different. For many landlords, taking out a buy to let mortgage via a limited company is now more tax efficient than borrowing personally, although we advise you to seek professional tax advice before you make any property investment decisions. For further details, calculations and examples relating to the restriction of relief on buy to let mortgage index, please take a look at our supporting guide: Income Tax Relief Changes for Buy to Let Landlords


Increase in Ltd Co borrowing Other reasons landlords are borrowing via Ltd Cos Inheritance tax planning If you set up a limited company, you can issue shares to your children which will give them a percentage ownership of the company. You can increase this share at a later time should you wish (although just be wary of restrictions on your mortgage should you have one). Whilst there may be some (tax) cost to doing this, it does allow ownership to be more fluid between family members.

Buy to let mortgage underwriting guidelines Limited companies are not subject to the stricter affordability checks on personal buy to let borrowing which was introduced by the Prudential Regulation Authority on 1 January 2017. This means that, in general, they can borrow more against a subject property than a landlord borrowing personally.

Ltd company buy to let mortgage transactions Limited company BTL mortgage applications versus applications by landlords borrowing personally (transacted at Mortgages for Business) Since the changes in income tax relief on landlords’ finance costs were announced in July 2015, corporate structures (predominantly Special Purpose Vehicle limited companies) have proved increasingly popular among buy to let investors because of the fiscal and financial efficiencies they can offer. Buy to let mortgage applications Before July 2015 when the tax changes were announced by the then Chancellor, George Osborne, less than one fifth (18%) of buy to let mortgage applications were made by landlords using limited companies (mostly SPVs). In Q3 2018, this figure had grown to 44%.

BTL Mortgage Applications Q3 2018

>> Guide: Income Tax Relief Changes for Buy to Let Landlords

ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAYBE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Call 0345 345 6788 | Visit mortgagesforbusiness.co.uk


Getting started

Understanding the different types of company Trading Ltd company vs SPV Ltd company In the mortgage world there are two types of company. The first are those which only hold property and do nothing else – these are known as Special Purpose Vehicles (or SPVs). Companies which do anything other than this are known as trading companies. What is a trading limited company? A trading limited company is a legal structure set up to run a business. The company takes responsibility in its own right for everything it does and its finances are separate from your personal ones. Owners of a private limited company are legally responsible for its debts only to the extent of the amount of capital they have invested. As the “trading” suggests, these companies are active trading vehicles. Here is an example of someone who uses their trading limited company to invest in property: An IT consultant sets up a private limited company. He uses the company to run his IT consultancy. He also uses the company to invest in buy, sell and rent out buy to let property. What is an SPV limited company? A Special Purpose Vehicle (SPV) limited company is a non-trading company that exists solely for buying, selling and letting property. Here is an example of someone who uses their SPV limited company to invest in property: An IT consultant sets up a limited company from which to run his IT consultancy. Separately, he also sets up an SPV limited company from which to buy, sell and rent out buy to let property. For tax and accounting purposes, the operation of and income from both companies are separate. Which one should you use to get a buy to let mortgage? From a lender’s perspective applications from SPVs are quicker and more straightforward to underwrite than applications from trading limited companies which require a greater level of understanding by the individual underwriter. Because of this there are more options available for SPVs and the pricing tends to be lower. For these reasons, many of our investors tend to go down the SPV limited company route. That said, there are still good options for trading limited companies, although to achieve the competitive rates your business will need to be strong financially and have at least two to three years’ trading accounts.

REMEMBER. WE ARE NOT PROVIDING TAX ADVICE. EVERYONE’S SITUATION IS DIFFERENT, SO PLEASE GET ADVICE FROM YOUR ACCOUNTANT OR TAX SPECIALIST BEFORE YOU MAKE ANY DECISION.


Getting started

Setting up an SPV Ltd Co It is much easier than it sounds! You can either ask your accountant or go online. Gov.uk.limited-company-formation/register-your-company An SPV limited company costs about £12. If you buy one online, it will take just a few minutes. It’s not complicated. Take note: •

You can call the company whatever you like, but keep it clean

If you aren’t sure how to structure your company – talk to your accountant

Buy to let lenders like to see one or all of the following SIC codes: 68100 – Buying and selling own real estate 68201 – Renting and operating of housing association real estate 68209 – Other letting & operating of own or leased real estate

What is a SIC code? Standard Industrial Classification of Economic Activities (SIC) is used to classify business establishments by the type of economic activity in which they are engaged. If you already have a company and are wondering whether it meets SPV criteria, it should have a property related SIC code (see above), and there should be no sign of any revenue through the company of anything other than letting property. If the company has traded in another field in the past, some of the lenders will still lend to the company as long as: •

Trading is historic

The company has the right SIC code

The accountant can confirm the company will only be letting property going forwards.

ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAYBE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Call 0345 345 6788 | Visit mortgagesforbusiness.co.uk


Getting started

Shareholders In theory you can have as many shareholders as you want, however the more shareholders you have, the more complicated your mortgage application gets. It’s quite common to have spouses, partners, children and friends as directors and/or shareholders. IMPORTANT: Before you set up your company, give us a call so that we can see if any of

your chosen shareholders and/or directors might preclude you from qualifying for a buy to let mortgage. Lenders tend to underwrite the directors, although some will ask for personal guarantees from all shareholders.

Borrowing through a newly set up Ltd company When borrowing through a Ltd company, lenders will usually ask that the directors and/or shareholders to provide unsupported personal guarantees (more info on this below) which means that these people are ultimately liable for the mortgage, in the same way as mortgage contracts given to landlords borrowing personally.

So, expect to be personally credit-checked and be required to meet the personal buy to let mortgage borrowing criteria too. This is how lenders get comfortable with the company being brand new and not having a track record.

Setting up a business bank account You are going to need a business bank account to run alongside your company. Setting one up can be quite a lengthy process, so it is best to get this underway as soon as possible. It is possible to apply for a limited company buy to

let mortgage without one, however a lender won’t be able to produce an offer until you have an account in place. Which bank you chose is entirely up to you. There are plenty of options out there.

REMEMBER. WE ARE NOT PROVIDING TAX ADVICE. EVERYONE’S SITUATION IS DIFFERENT, SO PLEASE GET ADVICE FROM YOUR ACCOUNTANT OR TAX SPECIALIST BEFORE YOU MAKE ANY DECISION.


Running a company

Running a Ltd company Once your company is up and running there are two key things you will need to do annually: You need your accounts and Company Tax Return to meet deadlines for filing with Companies House Also known as the Confirmation Statement, which is and HM Revenue and Customs (HMRC). You can also essentially, a snapshot of certain company use them to work out how much Corporation Tax information at the anniversary of the limited you must pay. company’s incorporation. It is a separate document from the company’s annual accounts. The The statutory accounts must include: Confirmation Statement will ask you to confirm: • A ‘balance sheet’, which shows the value of everything the company owns, owes and is • The details of the registered office owed on the last day of the financial year • Directors • A ‘profit and loss account’, which shows the • Secretary company’s sales, running costs and the profit or loss it has made over the financial year • Address of where you keep your records

1. The Annual Return

Statement of capital and shareholder information

SIC code(s)

Register of people with significant control (PSC).

The Annual Return costs £13 if you file it online, and £40 if done by post. To file online go to: gov.uk/file-an-annual-return-with-companieshouse

2. Company Accounts At the end of its financial year, your company must prepare: •

Full (‘statutory’) annual accounts

A Company Tax Return

Notes about the accounts

Potentially, a director’s report (check https:// www.gov.uk/annual-accounts)

Copies of the accounts must be sent to all shareholders, Companies House and HMRC as part of the Company Tax Return. The Statutory Accounts must meet either the International Financial Reporting Standards, or the New UK Generally Accepted Accounting Practice. There is a penalty for late filing. The Company Tax Return When you file the tax return, you work out your profit (or loss) for Corporation Tax and your Corporation Tax Bill. There is a separate deadline to pay your Corporation Tax bill – usually nine months and one day after the end of the accounting period. Again, there is a fine for late returns.

ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAYBE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Call 0345 345 6788 | Visit mortgagesforbusiness.co.uk


Incorporation

Incorporating a buy to let portfolio Want to move your personally owned properties into your limited company? Before going down the incorporation route we would urge any landlord who hasn’t yet sought professional advice in this regard, to do so as a matter of urgency. Landlords, you need to know exactly where you stand on this issue. So please, talk to your accountant or qualified tax specialist before making any decisions. Here are the most frequently asked questions we hear on the topic of incorporation.

Can I transfer my buy to let properties into a Ltd company? No! By law, you can't simply "transfer" properties, instead the transaction is viewed as a sale from you personally into the Ltd company. This means you and the company will need to take into account any costs of sale/purchase, such as but not limited to: •

In England and Northern Ireland, Stamp Duty Land Tax* (SDLT) including a 3% surcharge even though it might be the company’s first purchase.

In Wales Land Transaction Tax (LTT) including a 3% surcharge even though it might be the company’s first purchase.

In Scotland Land and Buildings Transactions Tax (LBTT) including a 3% surcharge even though it might be the company’s first purchase.

Legal fees and disbursements, possible refinancing costs

Can I stay with my current lender? Possibly. Some lenders (some of the ones which lend to Ltd companies) may allow this to happen without asking you to redeem your current loan (possibly avoiding ERCs) and starting over with a new application. If your lender doesn’t lend to Ltd companies this will not be possible. For example, if your mortgage is with BM Solutions you will have to refinance with a different lender. If you have a mortgage with a lender which does accept Ltd company applications, then they may allow you to stay. But to be clear, they are not obliged to, so you would need to ask the question and also check to see whether you will be charged fees by the lender, to enable the transfer of the mortgage to the Ltd company.

Does the company have to have cash in it, for the deposit? No! When you sell the properties to the limited company, any equity you leave in them will be treated as a director’s loan which means that as long as you have sufficient equity in the properties, you will not need to put in cash.

REMEMBER. WE ARE NOT PROVIDING TAX ADVICE. EVERYONE’S SITUATION IS DIFFERENT, SO PLEASE GET ADVICE FROM YOUR ACCOUNTANT OR TAX SPECIALIST BEFORE YOU MAKE ANY DECISION.


Incorporation

Can I set up a new company or does it have to have been trading for a period of time?

Can I take a single mortgage out on all the properties?

Yes! This type of lending is called a portfolio loan, You can set up a brand-new company which has no although do consider the pros and cons before going down this route. The pros are that you only trading record. Usually, lenders will take unsupported personal guarantees from the directors have to service one loan and making one application and (most often) the majority shareholders. Because will keep the upfront costs down. However, portfolio loans tend to fall into the commercial rather than of this, lenders are interested in these people and form their lending decision on them, rather than the buy to let remit which means that, typically, they are more expensive than a buy to let mortgage. A good history (or lack of), of the company. broker will give you options for both to consider.

Can I borrow more than I currently owe? Yes! As mentioned previously, from a mortgage lender’s perspective, this type of transaction is treated almost as if the company were buying the property from an unrelated third party. So, you can borrow as much as you need - within the lender’s limits. We frequently see borrowers who will re-gear the portfolio when they incorporate in order to fund further investments, or to cover the costs of incorporation.

I currently own buy to let property in my sole name, but want my spouse to be a shareholder in the company, will this be an issue? No! From a lender’s perspective, as long as you (as the current owner) will be part of the new company, then this is not likely to be an issue.

The properties are worth £150k each, do I have flexibility on the price at which I sell them to my company? No! You must sell the properties at the open market value, in this case, £150k. If you sell them for less, this would be viewed as an under-market transaction which the lenders do not allow, plus the tax man would take a very dim view!

Will I have to pay stamp duty? Most likely yes! As mentioned earlier, any SDLT, LTT or LBTT on most residential purchases made by limited companies, including the first purchase, will incur a 3% surcharge. If you come across a scheme which allows you to avoid paying the stamp duty, BEWARE and take property legal advice. If it seems too good to be true, it probably is!

Will I have to pay capital gains tax? Most likely yes! Again, take proper legal advice and avoid “too good to be true” schemes! From a mortgage perspective, lenders will be comfortable with bona fide schemes ONLY if they can be sure that all liabilities can be satisfied and you will not find yourself with a big, unexpected tax bill down the line. Remember, take professional advice before making any decisions. You might find that your accountant recommends that you continue to hold any properties you already own personally and only set up a limited company for new acquisitions. There really isn’t a “one answer fits all” solution.

ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAYBE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Call 0345 345 6788 | Visit mortgagesforbusiness.co.uk


Ltd Co Buy to Let Mortgages

Lenders & Product Numbers BTL mortgage lenders: 41 Ltd Co BTL mortgage lenders: 22 According to our Q3 2018 Buy to Let Mortgage Index 22 buy to let lenders offer rates to limited companies, out of a total of 41 tracked by the index. This means that more than half are now offering products to limited company borrowers – confirmation that the sector continues to move towards a more specialist bias.

BTL Mortgage Lenders

BTL Mortgage Products

43%

75%

Lenders offering products to Ltd Co borrowers

Products available to Ltd Co borrowers

Lenders with no Ltd Co products

Products available to individuals

Limited company pricing Five-year fixed rate buy to let mortgages available to landlords borrowing via a limited company reduced in price in Q3 2018, albeit by only 10bps, to 4.1% from an average of 4.2% - a small piece of good news! Pricing of all other rates remained the same on average, except 3-year fixes which rose on average to 4.2% from 3.9%.

At 05.12.2018: Total number of BTL mortgages: 2,006 Total available to SPVs: 604 | Total available to trading Ltd Cos: 196 REMEMBER. WE ARE NOT PROVIDING TAX ADVICE. EVERYONE’S SITUATION IS DIFFERENT, SO PLEASE GET ADVICE FROM YOUR ACCOUNTANT OR TAX SPECIALIST BEFORE YOU MAKE ANY DECISION.


Ltd Co Buy to Let Mortgages

Why rates to limited companies seem higher

Q3 2018:

Limited Company

Generally speaking, the very cheapest buy to let mortgage rates are offered by the mainstream buy to let lenders which do not cater to Ltd companies.

Products

No.

Lenders which do cater to corporations tend to offer the same rates to SPVs as they do to landlords borrowing personally.

Av. Rate

Variable

133

4.3% =

2 Year Fix

199

3.7% =

3 Year Fix

61

4.2% 

5 Year Fix

235

4.1% 

Total

628*

4.1%

*Total includes 1, 4 and 10 year rates. Average BTL Mortgage Rates Available to Ltd Companies

ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAYBE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Call 0345 345 6788 | Visit mortgagesforbusiness.co.uk


Applying for a Ltd Co mortgage

What security do lenders require when lending to Ltd Companies? Fixed and floating charges Charges, whether they are fixed or floating, are important because they determine the lender’s position in the queue for the net proceeds of a borrower’s assets in the event of a borrower’s insolvency. The main difference between a fixed and a floating charge is that a lender has control of the assets subject to a fixed charge, whereas the borrower keeps control over the assets subject to a floating charge. What is a fixed charge? In the world of property investment, a fixed charge is the mortgage on the property which has been identified as the security for the loan. Borrowers are not at liberty to dispose of assets subject to a fixed charge without the charge holder’s permission (as set out in the mortgage contract).

which point the floating charge crystallises, i.e. it becomes fixed. In the event of a default by the borrower (the limited company), floating charges rank behind preferential creditors, so are less popular with lenders than fixed charges.

Types of security When applying for a buy to let mortgage via a limited company a lender will ask for security in one of the following ways. First charge There is only one buy to let lender which doesn’t require a personal guarantee from the directors and/or shareholders. In this scenario the lender will just take a first charge over the property being mortgaged (a fixed charge). There are some commercial lenders which may offer a mortgage without a personal guarantee, but these are generally where the loan to values is less than 50% and on commercial terms.

What is a floating charge? A floating charge is the security on an asset (or assets) that can change in value or quantity.

First charge and personal guarantee In this case the lender will treat a limited company application in a very similar way to that of an For landlords and property developers operating via individual application. The lender will take a first a limited company this might include cash, book charge over the property (a fixed charge) and will debts, stock and fixtures and fittings. The limited require an unsecured personal guarantee from the company can deal with floating charge assets directors and/or shareholders. What this means is during the normal course of business without that these people are ultimately liable for the obtaining the lender’s permission. mortgage in the event of a repossession. This freedom only stops if the borrower defaults and a receiver or administrator is appointed, at

This does not mean the lender is taking a charge on your home or other assets. Rather, it means that

REMEMBER. WE ARE NOT PROVIDING TAX ADVICE. EVERYONE’S SITUATION IS DIFFERENT, SO PLEASE GET ADVICE FROM YOUR ACCOUNTANT OR TAX SPECIALIST BEFORE YOU MAKE ANY DECISION.


Applying for a Ltd Co mortgage should the rental property be repossessed and sold on, if the proceeds of sale do not clear the mortgage, (leaving the lender out of pocket), and the company does not have the means to make up the shortfall, then those who gave personal guarantees would be liable for the shortfall.

Commercial lenders tend to use fixed and floating charge debentures as standard when lending to limited companies but the buy to let lenders don’t always which is why it is important to speak with a broker who understands each individual providers’ stance.

First charge, personal guarantee and a floating charge In addition to a first charge and personal guarantee, some lenders will also take a floating charge over the assets of the limited company. To reiterate, a floating charge is an equitable charge over (usually) all the assets of the company both present and future. The company can deal with its own assets in the normal course of business without consent from the lender and the charge only becomes fixed over the current assets (or “crystallised”) if the company fails to repay the loan or, for example, goes into liquidation.

Why is it important to understand the different types of security? Those looking to borrow in a Ltd company capacity should ensure that the security they are giving to a lender does not restrict them from borrowing elsewhere at a later date.

First charge, personal guarantee, a floating charges & a debenture In some cases, lenders taking a floating charge will do so in the form of a debenture. A debenture is a written agreement between a lender and a borrower which sets out the fixed and floating charges and details the terms and conditions. It is filed at Companies House and prevents other parties getting security against the assets in question, unless a Deed of Priority is created. (A Deed of Priority is created where more than one lender takes security over a company). Debentures tend to be “all monies” which means they secure existing, present and future loan advances. This makes debentures popular with lenders and unpopular with borrowers!

For example: The Ltd company buys a property with a mortgage from a lender which takes a floating charge over the company as part of its security. Later, the Ltd company wants to purchase a second property and applies to a new lender for a mortgage. At best, the new lender will write to the lender which holds the floating charge to request confirmation that they are not planning on crystallising the charge. This confirmation is known as a "letter of non-crystallisation". At worst, the new lender may decline the mortgage application because its policy forbids lending where another lender already holds a floating charge over the company's assets. For landlords operating via limited companies, knowing which lenders to approach can be crucial. This is just one reason why many of these landlords engage specialist buy to let brokers to fulfil their borrowing requirements. For more information on what security lenders require when lending to a limited company get in touch. You can call us directly on 0345 345 6788 or email enquiry@mortgagesforbusiness.co.uk

ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAYBE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Call 0345 345 6788 | Visit mortgagesforbusiness.co.uk


Applying for a Ltd Co mortgage

Deposits for Ltd companies What lenders will and won’t accept as a deposits on a Ltd company buy to let mortgage application To ensure that standard anti-money laundering checks are met, the lender (and the solicitor) must identify a clear and legitimate source of funds. The most common deposits for limited company applicants are: •

Savings. This is the simplest way of providing a deposit. You will need to show a build-up of savings in your account, usually by providing at least three months’ bank statements. If a large sum has been paid in, it is likely that the underwriters will want to know the source of these funds.

Directors’ loans. Most lenders are comfortable with these and will require either company accounts and/or bank statements to show the director has the funds available to loan to the company.

Gifted deposits from close family members. These are acceptable to lenders but usually needs to be from parents – lenders will often ask to see proof of funds in the form of bank statements.

Inter-company loans. Not all lenders are happy to accept these. Where the SPV is a subsidiary company, there are a few lenders that will allow inter-company loans; however, some will insist on the parent company paying dividends to the director then the director loaning to the subsidiary company, whereas others will lend as long as the directors are the same on both companies and the directors are the shareholders of the parent company.

Sale of property. A common approach is to sell a property or refinance another property and use the funds raised as the deposit. Where this occurs the lender will request either bank statements showing funds going into the account or a completion statement from the solicitor.

Shares. This isn’t something we see very often nor do lenders but, in theory, they are acceptable. The lender will want to see the contract note for the shares and potentially the funds in the account once the shares are sold.

Inheritance. This form of deposit is accepted by many lenders as long as they receive a letter from the solicitor confirming details. By its very nature, inheritance and probate scenarios can be quite time-consuming so finding the right lender can be key.

Deposits from overseas. Perfectly acceptable as long as the country the money is being transferred from is signed up to the Financial Action Task Force (FATF).

Source of deposit not listed above? Don’t despair, some of the more specialist lenders will often take a more flexible and sophisticated approach than the tick box exercise often used for personal borrowing, so it is always worth running the scenario past a specialist broker. Call us directly on 0345 345 6788 or email enquiry@mortgagesforbusiness.co.uk

REMEMBER. WE ARE NOT PROVIDING TAX ADVICE. EVERYONE’S SITUATION IS DIFFERENT, SO PLEASE GET ADVICE FROM YOUR ACCOUNTANT OR TAX SPECIALIST BEFORE YOU MAKE ANY DECISION.


Applying for a Ltd Co mortgage

Will I qualify for a Ltd company BTL mortgage? As a general rule, you will need to meet three key criteria to qualify for a buy to let mortgage. You will need to:

1. Own a property already 2. Have an income 3. Have a reasonably clear credit profile If you can meet these three criteria, then there is a strong chance you and your company will be eligible for a buy to let mortgage. If you only meet two of the three, its still possible that we can help and that’s where our expertise really comes into play, as we know the minutiae of each lender’s policy. Either way, do get in touch to talk through the options for your circumstances.

ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAYBE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Call 0345 345 6788 | Visit mortgagesforbusiness.co.uk


The legal work

The legal work When applying for buy to let finance both borrower and lender will need a solicitor to carry out all the necessary legal administration that’s required to complete the loan contract and the purchase or refinance of the property.

Purchases If a property is being purchased, the solicitor is instructed to carry out the conveyancing, (the legal process of transferring ownership of a property from one party to another), and all the other tasks involved such as the searches.

Sometimes the lender will allow the borrower to use a non-panel solicitor as long as the firm of solicitors meets certain criteria – usually, at least four Solicitors Regulation Authority (SRA) registered partners within the firm.

Remortgages

Separate Legal Representation

The legal process for remortgages tends to be shorter because there is no transfer of ownership. Title insurance is often used by the lender to cover any potential property issues that haven’t yet come to light e.g. defects of title, unidentified easements, etc.

Dual or Joint Representation On standard buy to let mortgage applications made by landlords borrowing in a personal capacity, it is usual for both the borrower and the lender to have the same solicitor act for each of them. For the most part, the solicitors instructed are part of a panel of solicitors who are approved by the lender.

For limited company buy to let mortgage applications (and more complex buy to let scenarios made by landlords borrowing personally), lenders prefer both parties to use separate solicitors. As with dual representation, most lenders will require the borrower’s solicitor to be on their panel or meet certain criteria. In addition to having a least four SRA registered partners, many lenders also require the solicitor to have property finance experience. If you decide not to use a panel solicitor, your broker will find out if your preferred solicitor is acceptable to the lender.

REMEMBER. WE ARE NOT PROVIDING TAX ADVICE. EVERYONE’S SITUATION IS DIFFERENT, SO PLEASE GET ADVICE FROM YOUR ACCOUNTANT OR TAX SPECIALIST BEFORE YOU MAKE ANY DECISION.


The legal work It is up to the borrower to instruct their own solicitor regardless of whether the firm is on the lender’s panel.

How long does the legal process take? How long is a piece of string?! Generally speaking, the legal work takes a little longer for limited company buy to let mortgage applications for two main reasons: 1. Separate legal representation means that two solicitors are involved in the process, both keen to look out for the interests of their own client. This means a bit more to-ing and fro-ing. 2. The solicitors have to process both the directors and the limited company, rather than just the individual applicants. In addition to the usual searches, checks have to be made with Companies House, and Personal Guarantees (PG) given by the directors have to be signed. Lenders will even insist on directors taking independent legal advice for the PGs which means a third solicitor gets involved, although often all this can be another partner within the same firm.

restrictions relating to the property such as tree protection orders, listed status, conservation area, smoke control zone, Article 4 Directions, Community Infrastructure Levies, conditional planning permissions, planning enforcement notices, and financial charges registered against the property. 2. The Enquiries of Local Authorities form (CON29) This is search which investigates planning history, building control regulations, highway information (including road scheme proposals), proposed tree preservation orders, proposed planning enforcement or breach of condition notices, Community Infrastructure Levy (CIL), assets of community value, rail schemes and proposals, and public footpaths shown on definitive maps. 3. The Optional Enquiries of Local Authorities Form (CON290) As indicated, this in an optional search which looks at gas pipelines, common land enquiries, flood defences and land drainage consents. For more information about searches, you can read An Independent Guide to Property Searches published by Land Data.

Often the most time-consuming part of the process are the Local Authority searches. There are 375 Local Authorities in England and Wales, and many In addition to the official search, the lender will let of them still use archaic systems which means it the solicitor know which other searches are can take anything from 48 hours to more than 40 required. days to get the search results. This means it is crucial that landlords ensure that their solicitor gets Paying the legal fees these started as soon as possible. The borrower takes responsibility for all the legal fees – both their own and that of the lender. The Searches fall broadly into three parts. lender’s own legal representation and the panel solicitors usually provide a scale of fees. Borrowers 1. The Official Certificate of Search (LLC1) should remember to agree the fee structure before This is a request for a search of the Local Land proceeding to avoid any nasty surprises. Charge Register which would cover any charges or

ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAYBE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Call 0345 345 6788 | Visit mortgagesforbusiness.co.uk


Starting an application

The application process Applying for a Ltd company buy to let mortgage through a mortgage broker helps to relieve some of the stress. We can help answer any questions along the way and the majority of our buy to let lenders accept our simplified, bespoke form. So, whichever mortgage product you wish to use for funding your buy to let property, simply download our application form to get the process started. You can fill it in online (remember to save it locally) and email it over to us, or print it out and put it in the post.

1. Get in touch At this stage we will chat to you about your circumstance and requirements. We will use the information you provide to get some quotes. This is completely free of charge and without obligation. If you already know what mortgage product you would like to apply for skip to step 3. Call 0345 345 6788 Email enquiry@mortgagesforbusiness.co.uk

4. Decision in Principle We take the details from your completed application form and submit them to your chosen lender. Pretty quickly, the lender gets back to us with a decision in principle. Sometimes the lender asks for a bit more information before issuing the DIP.

5. Full Mortgage Application Once a positive decision in principle has been issued we will contact you to check you wish to proceed. If you do, you then supply us with documents to support your application e.g. proof of ID and address. You’ll also need to pay the valuation fee.

2. We’ll get you a quote We search the market for you then present you with the options which we believe best match both your circumstance and requirements. We'll give you a chance to review the products before calling you to discuss your decision and next steps.

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3. Submit an application Complete our buy to let application form and return it to us by email or post. If you have any questions when filling it in just give us a call to discuss. You can download our Application Form here.

6. Valuation The lender will instruct a valuation and start underwriting the application. If everything adds up and the valuation comes back in as expected, the lender will produce a formal mortgage offer.

7. Offer We will get in touch with you as soon as we receive the formal mortgage offer. It is at this point we charge a broker fee. If we can’t get you a formal offer, we won’t charge you anything. You can find out more about our fee structure here.

REMEMBER. WE ARE NOT PROVIDING TAX ADVICE. EVERYONE’S SITUATION IS DIFFERENT, SO PLEASE GET ADVICE FROM YOUR ACCOUNTANT OR TAX SPECIALIST BEFORE YOU MAKE ANY DECISION.


Supporting information

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>> Sign up to our weekly Investor Update >> Download our Buy to Let Tax Calculator >> Download our Buy to Let Application Form Search Mortgages for Business

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THIS APPLICATION PROCESS SHOULD BE USED AS A GUIDE ONLY . APPLICATIONS AND FESS VARY DEPENDING ON A CLIENTS CIRCUMSTANCES.

8. The legal work begins Your solicitor and lender’s solicitor will carry out all the necessary legal administration that’s required to complete the transaction. Liaising with all parties, we work hard to ensure that this part of the process happens as quickly as possible.

9. Completion The funds are transferred and your mortgage / refinance application is complete!

ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAYBE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Call 0345 345 6788 | Visit mortgagesforbusiness.co.uk


Further Research We publish a variety of papers designed to help landlords, businesses and home-buyers make informed property investment decisions. For more information Please visit the News & Insight section of our website for more information about the impact of both tax and regulatory changes to buy to let landlords. ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. Published: Dec 2018 | © 2018 Mortgages for Business Marketing Department Tel: 0345 345 6788

Email: marketing@mortgagesforbusiness.co.uk Website: www.mortgagesforbusiness.co.uk

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