It’s time to think about how to get finance for our limited companies – in particular, for buy to let properties. To do this, we need to think about what an SPV is from the bank’s point of view.
From the bank’s point of view, the SPV is going to be a limited company (or LLP or partnership, etc.), which you have created solely for the purpose of owning the buy to let property. It’s as simple as that.
So, you might ask: “How do you set it up and what does the bank want to see?”.
What the bank wants to see is a limited company which has been set up specifically for the purpose of buying the properties. What the bank doesn’t want to see is an existing company that’s already trading.
For example, it might be that you’re an IT consultant and your consultancy runs through a limited company. Now, if you go to the bank and say, “I’ve already got a limited company, it’s already trading, there’s money in the limited company and bank account – isn’t that a good thing?”.
The answer would probably be, ‘No’.
In fact, the bank is likely to say that it’s a bad thing. It doesn’t want to lend to a company that’s already existing and trading. Instead, it wants to lend to a company that’s brand new.
The bank wants you to keep the two business activities separate. They don’t know what’s going to happen to your IT business; they don’t know how many debtors you’ve got, whether you owe money through that business and if there are any other liabilities attached to it – although they will do a check. The bank wants to keep it nice and clean.
All they are concerned about is that you can pay the interest on the loan and if you ever get into financial trouble, that they can repossess. And, if all your properties are entwined with your IT business, the situation would be far trickier.
Now, you may be wondering: if the company hasn’t been trading because you haven’t yet bought any properties, why would they actually lend you any money?
It doesn’t matter – because the bank will lend to the limited company or whatever the SPV, and they will lend on the basis of YOU. They will look at you and at your SA302 or Personal Tax Account (PTA); they will look at your bank statements, income, and at whether you own a home.
But what about the myth that finance is hard to get?
I’ve been buying properties into my limited company for the last 20 years and I have never had a problem. There are certainly plenty of lenders out there who will lend to limited companies. In fact, at this moment in time, roughly a third of all buy to let lenders will lend to limited companies – and this number is growing.
Just looking at recent years, back in 2012 there were only about 30 products for limited companies. Fast forward to mid 2017 and there were 312 mortgage products for limited companies. So now, in 2018, I expect there are probably 400 or 500 products. So, when I hear people say it’s hard to get mortgages for limited companies, my view is that they’re obviously not using the right broker!
What about the opinion that the rates are now more much expensive?
Perhaps, but only marginally – and things will change and as more and more lenders come into the market for limited companies. But for now, I’d say that the rates are not much higher than for a normal individual who’s taking on a buy to let in their own name.
Besides, when you think about it (and because of the tax advantages of buying into a limited company), whatever you lose on paying extra interest, you’re going to gain back on tax regardless.
Sit down, do the figures and see if I’m right!
Here’s to successful property investing.
Peter Jones B.Sc FRICS
Chartered Surveyor, author and property investor
By the way, I’ve rewritten and updated my best-selling e-book, The Successful Property Investor’s Strategy Workshop, which is an account of how I put together my multi-property portfolio, starting from scratch and with no money of my own, and how you can do the same. For more details please go to: www.ThePropertyTeacher.co.uk/the-successful-property-investors-strategy-workshop