THE QUESTION

I'm looking at a HMO for my next project but would like to put this one into a new limited company. How easy\difficult is to get a mortgage on a limited company without any trading history

What are the perils and pitfalls of using brand new limited companies for lending? Is it possible?

THE ANSWER

Mainstream BTL lenders do not lend to limited companies or SPVs regardless of how young or old they are. If you want a 'vanilla' BTL mortgage you have to apply as an individual.

If you want to borrow in the name of a limited company, then you will need to go to commercial lenders, or what I would refer to as specialist lenders; those on the periphery of BTL lending.

Trading history, accounts etc. are less relevant if the property you are putting up as security has a provable, consistent income that reassures the lender that you have the ability to service the mortgage payments. So, if you can show a fully let property, with ASTs as the proof of...

THE QUESTION

In various interviews and strategies there is a fairly heavy reliance on buying BMV and recycling your cash quickly to multiply your portfolio and increase cash flow. This doesn't only seem to be theory, but what lots of investors are actually doing.

How is this achieved? Are people buying with cash and then able to get a BTL mortgage as soon as they like? 

I guess another option is that some are using bridging until they've done the work and then getting the mortgage at the new higher value?

What are the options for those who simply want to use standard BTL mortgages? Would there be many with no ERC? If you use these to remortgage after 6 months after adding value, will the banks start to get annoyed? If that's the case is really the only option to wait out the 2 years and remortgage then? It seems like that will slow things down quite dramatically.

THE ANSWER

Building a portfolio traditionally can be a very slow process. Buy a property, put 25% deposit down, wait...

THE QUESTION

What the difference is between a commercial loan and a regular BTL mortgage is and what are the pros and cons?

THE ANSWER

BTL mortgages are usually where you start, commercial mortgages are usually where you end up. If you are just starting BTL lenders are your natural choice. Generically, the differences are as below.

BTL lenders have many tick box criteria, commercial have many less.

BTL lenders ideal borrower is:

• Employed
• Earning £25k+ pa
• Owns only a few properties
• Is willing and able to put down a 25% deposit which is their own (not anyone else's) cash and happy to leave it in the deal.

Their ideal property is a single let, max 5 bedrooms. They are happy to lend to first time landlords, but almost none lend to first time borrowers.

Commercial lenders are happy to lend to full-time landlords, but not exclusively so.

• They don’t lend to first time landlords, minimum 12 months letting experience is required.
• They lend on all the properties BTL lenders...

THE QUESTION

I've purchased a property (exchanged contracts already) that is currently let to a charity.

The charity, as I understand it, then put young adults who have recently come out of care into the property (either on a sublet or license I'm not sure at this stage).  It’s on a corporate tenancy agreement (i.e. just a common law tenancy not an AST).

Are there any lenders that allow this? Most want ASTs and the ones that I can find that allow corporate lets seem only to allow the company to then place one of their own employees in the property.

I did want to purchase this with a mortgage, but looks like I will have to use cash. I can give the charity notice a couple of months after completion so that I can get a buy-to-let mortgage, but it seems a shame to get rid of a tenant that is likely to be there for a long time so I could do with finding a mortgage lender that will allow all of the above.

THE ANSWER

There’s no need to get rid of a good tenant,...

I am looking to buy a house to multi-let, but the house I've identified comes with an elderly long-term tenant on a long term contract. Can I serve notice for the tenant to leave or does a long term tenancy come with regulations to stop me doing this?

THE ANSWER

This sounds like a pre-1988 Regulated Tenancy. If it is, that is a lifetime tenancy, with possibly the right to pass the same agreement down to the next of kin.

You have zero chance of serving notice and any court will back the tenant 100% if you do.

Tenants like this, or those around them, have a highly developed awareness of the value of their tenancy. One such tenant in a central London flat was reported to have refused £500,000 in cash to give up the tenancy.

You have zero chance of borrowing any money to purchase it either, as no lender will touch it with a bargepole due to the tenant and their rights of occupancy.

This type of property has long been the preserve of affluent cash buyers. These properties...

THE QUESTION

Can I remortgage a property immediately after cash purchase?

THE ANSWER

With regard to how and when you can remortgage, the method of purchase is irrelevant;  buying with cash doesn't make any difference to the property's mortgageability.  What is relevant is the lender's attitude to remortgaging a property recently bought.

Almost every BTL lender has a six month ownership restriction, preventing you from applying for a remortgage before you've owned the property for that period.

Commercial and specialist lenders don’t operate that restriction, so will accept applications at any time.

If you want to remortgage, irrespective of whether you bought for cash or not, it is quite simple; you use a lender that allows you to.

Another level of complexity enters the equation if your intention is to remortgage at a higher value than the purchase price paid. To do this almost certainly will require you to have improved the condition of the property since...

THE QUESTION

Is it better to buy-to-let or buy, than refurb and sell?

THE ANSWER

Neither is better, they're just different strategies.

Buying-to-sell (BTS) gives you a significant cash lump sum (if you do it right) within months.

Buy-to-Let (BTL) gives you a much smaller monthly profit (if you do it right) for years to come, with the bonus of potential capital growth (depending on where you buy).

• Some people focus on BTS because their current circumstances mean they are not mortgageable. That prevents them using the BTL strategy, up to the point where their profits establish a sufficient credit record and they become mortgageable
• Some people choose to BTS properties that need no work doing to them, but can be sold at a profit on the purchase price paid.
• Some people choose BTL on properties they do up because they can increase the value, get a mortgage against the higher value and have relatively little of their own cash left in the deal.
• Some people choose to use a combination of...

THE QUESTION

I'm viewing a house which has been split into two flats. I believe that the title has not been split. What are the rules for lending on a property like this? I am guessing I won't be able to use a standard BTL mortgage? Anything else I should be wary of for a property converted into two flats?

THE ANSWER

The first rule on any property divided into flats is to check with the local planners that permission to do this has been applied for and approved. Two reasons for this:

1. It is the first thing any lenders surveyor does.
2. If it has no PP it is unmortgageable with any lender as it is an illegal conversion.

There is an amazing number of these flat conversions that are done without PP, as the owner doesn’t think beyond 'Hey, I can get more rent if I can split it into flats.'

If you can establish it has been used as flats for a number of years you can apply to the council for retrospective PP.  Even more amazingly very few vendors actually do this; they just...

With regards to getting a BTL mortgage, I have been told by people that I need to show that I have the deposit in my account for the last 3 months. My in laws are selling their house for £45k and we have agreed to put this money into property investment. So if my father-in-law put that money into my account, do I have to wait 3 months before I can get a BTL mortgage or have I been told wrong?

Understanding the lender's thinking guides you to the answer.

Your solicitor has the responsibility under Anti-Money Laundering laws to provide proof that your deposit is from a legitimate source but...

BTL mortgage lenders in particular want to determine that you have not borrowed the money and it is really your own cash you are using and you are not trying to disguise the fact you are borrowing from someone/where else.

To that end they often want to see an audit trail stretching back 12 months, not 3. If chunks of money have just dropped into your account within that time, they will...