Mortgages for a LTD company
Discussion
Hi
Looking for some advice, a friend and I have decided that we want to form a limited company that would buy and sell property, hold a buy-to-let portfolio and do light redevelopment / refurbishment work to the residential flats and houses we buy and sell.
We have done a great deal of work to understand whether the LTD company route is the right way to go and it is.
However the last (and perhaps most important bit) is raising finance as a newly formed LTD company. Everybody tuts and talks about how impossible this is (we are still trying to qualify if this is the case).
I thought the risk for a mortgage lender was to deal with the risk through the deposit and the interest rate? I.e., if the rental yields look low then nudge up the interest rate and slap on a high enough deposit, if it comes to foreclosure take back the property, sell it and then deduct costs and margins from the deposit and / or equity?
To avoid having to refurb or make good a property under a foreclosed sale - throw it through auction and deduct losses from the deposit / equity?
My point being, why is there (and was there prior to the credit crunch) such a adversity to risk given that the deposit deals with the lender getting their money out if the LTD company fails?
Any thoughts or sources of LTD company mortgages welcome...
Looking for some advice, a friend and I have decided that we want to form a limited company that would buy and sell property, hold a buy-to-let portfolio and do light redevelopment / refurbishment work to the residential flats and houses we buy and sell.
We have done a great deal of work to understand whether the LTD company route is the right way to go and it is.
However the last (and perhaps most important bit) is raising finance as a newly formed LTD company. Everybody tuts and talks about how impossible this is (we are still trying to qualify if this is the case).
I thought the risk for a mortgage lender was to deal with the risk through the deposit and the interest rate? I.e., if the rental yields look low then nudge up the interest rate and slap on a high enough deposit, if it comes to foreclosure take back the property, sell it and then deduct costs and margins from the deposit and / or equity?
To avoid having to refurb or make good a property under a foreclosed sale - throw it through auction and deduct losses from the deposit / equity?
My point being, why is there (and was there prior to the credit crunch) such a adversity to risk given that the deposit deals with the lender getting their money out if the LTD company fails?
Any thoughts or sources of LTD company mortgages welcome...
In literal terms it doesn't, however should it take possession of the property the lender gets to sell at market value - which would include the equity that was the deposit.
So if my previous assertion is true and on the above basis, then the risk that a substantive deposit doesn't cover the lender's profit in the event of a disposal is a market price drop as opposed to a lender profile risk?
Unless in an individual's case the lender could come after the borrower's wealth beyond the mortgaged property - which I guess is the case.
I guess I've answered my question?
If the market drops and the deposit / unmortgaged equity doesn't cover lost profits and disposals as in the case of a LTD company then there's requirement for a risk premiun...
So if my previous assertion is true and on the above basis, then the risk that a substantive deposit doesn't cover the lender's profit in the event of a disposal is a market price drop as opposed to a lender profile risk?
Unless in an individual's case the lender could come after the borrower's wealth beyond the mortgaged property - which I guess is the case.
I guess I've answered my question?
If the market drops and the deposit / unmortgaged equity doesn't cover lost profits and disposals as in the case of a LTD company then there's requirement for a risk premiun...
When mortgage companies foreclose and sell the assets, they will sometimes look to do it quickly, and the asset may well be sold for less than in may normally be worth. And at that point, you will have no control over matters.
Personally, I would be surprised if a lender would give a new company a mortgage without asking for personal guarantees from the shareholders, though I admit that this is not my area of expertise.
Bear in mind that interest rates are likely to start rising within the next 12 months, albeit slowly at first. Though even that is likely have a significant impact on the profitably of the highly geared. It may also put the brakes onto the, rather frothy, property market.
Personally, I would be surprised if a lender would give a new company a mortgage without asking for personal guarantees from the shareholders, though I admit that this is not my area of expertise.
Bear in mind that interest rates are likely to start rising within the next 12 months, albeit slowly at first. Though even that is likely have a significant impact on the profitably of the highly geared. It may also put the brakes onto the, rather frothy, property market.
This is definitely doable, I'm getting some commercial BTL finance arranged through Lloyds just now to one of my Ltd companies. I'm unsure if there will be a directors guarantee involved or not yet (which isn't really that important for me, but may well be for you if there's 2 directors.) It'll be the "commercial" part of the bank rather than "branch business level" in my experience. The LTV isn't as high as individual BTL's, about 60% compared to the 75%+ you can get from standard BTL's.
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