B2L - Limited Company with Investors

zesh90x

Hi All,

Hope you are well.

Couple of questions - I am looking to go down the route of forming a limited company to acquire a B2L property and have a few questions I was hoping I can get some help with:

1. I will form the company and be the Director for the company, ideally i am also planning to bring "investors" on-board as shareholders with voting rights. I don't necessarily know the background of the investors in detail, so if they have poor credit records/rejected mortgages would anything as such impact the ability of the company to get a mortgage, or are they treated as "investors" only, and therefore only my conduct/conduct of Directors matter?

2. Does the number of Directors and shareholders effect the ability for the company to get a mortgage, i.e. if i am the only director vs me and 2 of my brothers all of us being Directors? Same goes for investors i.e. shareholders?

3. I understand that for B2L purposes it's not a case of affordability but rather that the income generated exceeds the mortgage by 25% (interest only) + - my plan is to acquire the property, perform building work/add rooms etc. and then rent it out, therefore I am confident it will exceed the mortgage payments by 25% will this be sufficient, if i can evidence that through estate agent letters or so?

4. The cash going into the company for investment will be my own savings, my brother's savings, contributions from our wife's and potentially the help of mum & dad's, either ours or our wife's. The wife's would only be helping out however and don't expect anything in return therefore would not be shareholders or directors, would their contributions be an issue or is this acceptable?

5. The alternative approach i was considering was to get a bridge finance at 65% LTV, do the property up and then get a mortgage, my concern here is however if the company struggles to get the mortgage I would have no exit ramp, not sure if there is a upfront procedure that can be performed to safeguard against that ? Especially with the current interest rates, i don't mind paying 1%+ or so monthly for the next 12 months, with the plan to exist as soon as the value has been added to the property to then hopefully get a better product at a lower interest rate for the mortgage.

Thanks so much for any help in advance, i am fully aware i will need both a mortgage broker and conveyancer eventually, so if you are a mortgage broker/do deal with B2L under companies and can help please feel free to say so and we can maybe even have a chat/call... appreciate there is a LOT i may be asking here, and it may be a mid muddy!

DullGreyGuy

1.  Banks will perform checks on any major shareholders, exact percentages vary by bank but typically its anyone holding 25% or more of the total shares issued. These typically are more AML/Financial Crime than credit checking. Obviously as a brand new company it is going to have no credit history and as such the bank may ask for personal guarantees either from directors or major shareholders, any of those would go through full credit checking.

2. Just increases the number of people that have to go through the process but also more potential people who can be offered up as guarantors. This may lose the advantage of being an LTD depending on your rational for this structure

3. They'll come to their own conclusions rather than ask you to get letters from estate agents

4. It would normally be gifted to you etc and then you provide the money to the company as a directors loan thus allowing future extraction of the funds, if its successful, without taxation. Normal IHT rules would apply should any pass within 7 years of the gift


Sounds like you need to speak to an accountant as well as a mortgage broker. 

DullGreyGuy

1.  Banks will perform checks on any major shareholders, exact percentages vary by bank but typically its anyone holding 25% or more of the total shares issued. These typically are more AML/Financial Crime than credit checking. Obviously as a brand new company it is going to have no credit history and as such the bank may ask for personal guarantees either from directors or major shareholders, any of those would go through full credit checking.

2. Just increases the number of people that have to go through the process but also more potential people who can be offered up as guarantors. This may lose the advantage of being an LTD depending on your rational for this structure

3. They'll come to their own conclusions rather than ask you to get letters from estate agents

4. It would normally be gifted to you etc and then you provide the money to the company as a directors loan thus allowing future extraction of the funds, if its successful, without taxation. Normal IHT rules would apply should any pass within 7 years of the gift


Sounds like you need to speak to an accountant as well as a mortgage broker. 

DullGreyGuy

1.  Banks will perform checks on any major shareholders, exact percentages vary by bank but typically its anyone holding 25% or more of the total shares issued. These typically are more AML/Financial Crime than credit checking. Obviously as a brand new company it is going to have no credit history and as such the bank may ask for personal guarantees either from directors or major shareholders, any of those would go through full credit checking.

2. Just increases the number of people that have to go through the process but also more potential people who can be offered up as guarantors. This may lose the advantage of being an LTD depending on your rational for this structure

3. They'll come to their own conclusions rather than ask you to get letters from estate agents

4. It would normally be gifted to you etc and then you provide the money to the company as a directors loan thus allowing future extraction of the funds, if its successful, without taxation. Normal IHT rules would apply should any pass within 7 years of the gift


Sounds like you need to speak to an accountant as well as a mortgage broker. 

ACG

I suggest you speak to a broker, probably a commercial mortgage broker. 

They will be able to answer all of your questions and probably make suggestions on how best to set up the company etc. What you are asking is really quite complex and very unique/specific. 

zesh90x

ACG said:

I suggest you speak to a broker, probably a commercial mortgage broker. 

They will be able to answer all of your questions and probably make suggestions on how best to set up the company etc. What you are asking is really quite complex and very unique/specific. 

Thanks ACG - do you know any commercial mortgage brokers you can recommend or are you one ha?

ACG

Im not one, I can do commercial stuff, but this is well beyond my knowledge. 

I cant make recommendations, it cant be checked if i have anything to do with the firm. I would say just jump on google and look for a local firm. Just check for reviews, remember it is unregulated so you do not have the same security as you would with regulated mortgages - check everything. I am not sure how those brokers charge, but maybe try to make sure it is only on results rather than upfront. 

amnblog

There are a number of factors to be considered on the mortgage side, for example:

Lenders will want to be comfortable with everyone who has some control of the business
Lenders often put a limit on how many such individuals can be involved
If those people also have a number of buy to lets already, that will complicate matters further
Your understanding of the mortgage affordability calculation is too simplistic and out of date
BTL products for companies are usually priced at a small premium

However, before you consider all this, your first conversation should be with a qualified Accountant to make sure you understand the taxation implications here as the the tax regime for property investors is now onerous.