Specialist buy-to-let mortgages:
Trading companies
A trading company buy-to-let mortgage allows an existing business to purchase and own residential investment property directly. Unlike a Special Purpose Vehicle (SPV), the company also conducts another trade, such as consultancy, construction, retail or professional services.
This can be useful where a successful business has accumulated funds that its owners want to invest in property without first withdrawing them personally. However, the lender market is considerably smaller than for property-only SPVs.
Why trading companies are assessed differently
An SPV normally has a straightforward purpose: receiving rent and paying property expenses. A trading company may also have employees, suppliers, commercial borrowing and other financial commitments.
The lender therefore assesses both the property investment and the underlying business. This may include its accounts, profitability, cash flow, existing debts, major customers and contingent liabilities. Some lenders require at least two years’ successful trading, although criteria vary.
Property use and company authority
The property must normally be a genuine investment let to independent tenants. If it will be occupied by the business, used as commercial premises or provided to a director or close family member, a different mortgage may be required. Employee accommodation can also need a different lending or tenancy structure.
The company may need an appropriate property-related SIC code alongside its existing trading codes. Board resolutions may be required to confirm that it is authorised to purchase the property, borrow money and grant security.
Directors and shareholders
A trading-company mortgage can involve more people than initially expected. Depending on the lender and ownership structure, all directors and significant shareholders may be required to join the mortgage application.
Each applicant may need to undergo personal credit checks, provide income and asset information, disclose existing commitments and sign a personal guarantee.
This can become a problem where only some of the directors or shareholders want to branch into property investment. Younger directors may be keen to use accumulated company funds to build a portfolio. Older shareholders may instead be approaching retirement and looking to extract value from the business, simplify their affairs or pass wealth to family members. Committing company capital to property and accepting a long-term personal guarantee may conflict directly with those plans.
Where only certain individuals want to invest, establishing a separate property SPV may be more appropriate. However, any movement of funds from the trading company must be properly authorised and structured.
Deposit and working capital
The deposit may come from retained profits or other company funds, but its source must be evidenced. The lender may also consider whether using the money would leave the trading business with sufficient working capital.
Recent transfers, director’s loans and funds borrowed from another business or lender are likely to require further explanation.
Existing borrowing and company security
An existing lender may hold a debenture containing fixed or floating charges over the company’s assets. The company may also have agreed to a negative pledge preventing it from granting further security without permission.
Consent, a waiver, deed of priority or intercreditor agreement may be required before the buy-to-let lender can obtain satisfactory security. Cross-default provisions can also mean that defaulting on one company facility triggers a default under another.
Existing finance agreements should therefore be reviewed before the mortgage application is submitted.
Affordability and an SPV alternative
Mortgage affordability is generally based primarily on the property’s expected rent, although the lender will also consider the strength of the trading business. See Rental assessments & affordability calculations for more detail.
A separate SPV may receive funding from the trading company through a properly documented intercompany loan. Some lenders accept this structure, but their requirements concerning common ownership, control, repayment terms and evidence of funds vary.
A trading-company mortgage can provide a valuable route for an established business to invest directly in property. The company’s shareholders, succession plans, existing borrowing and longer-term objectives should all be considered before deciding whether direct ownership or a separate SPV is more appropriate. Specialist mortgage, legal, tax and accountancy advice may be required.