Helping a First Time Landlord get Development Funding
With a buy to let mortgage
Buy to let investing is popular both for individuals and with businesses, and can provide two potential income streams.
You should be able to enjoy an income from rent and from capital growth if the property value goes up.
But nothing can be guaranteed. The property market has ups and downs so it is possible to lose money with a Buy to let property if the property market falls, your outgoings exceed rental yield, or if the property is vacant for a long period of time. One of the ways to reduce that risk is to ensure that you have the most competitive mortgage for the property.
At Rangewell, we recently helped fund a first-time landlord who had set up a limited company to deal with his property interests with a buy to let mortgage.
What is a buy to let mortgage?
BTL mortgages are intended for landlords who want to purchase a property and rent it out. They are similar to ordinary residential mortgages, but fees and interest rates are generally higher, and the minimum deposit is 20% of the value of the property.
This contrasts with residential mortgages on which, in some cases, you may be able to borrow 95%.
Most BTL mortgage are Interest-only BTL properties are more easily sold, once tenants leave. Landlords tend to prefer the lower monthly mortgage repayments.
Some lenders will only lend on properties with a valuation above a particular level. While, usually, this is a nominal figure of £40,000 to £50,000, some lenders require minimum valuations starting at £100,000 plus.
If your property is unusually constructed in terms of materials or design, you may need a specialist lender. New build flats which are over-valued can present difficulties at the valuation stage.It is possible to obtain a buy to let mortgage as a first time buyer - which means that you do not currently own another property. However, many lenders won’t lend to first time buyers on a buy to let basis, as they see it as a big risk. Because of this reason, first time landlords could find themselves having to provide more information, a higher deposit or a higher ratio or rental income to mortgage payments.
When large sums are involved, all lenders have to be cautious. Even those who are prepared to fund property may have a tight set of criteria that they will consider. Others may be reluctant to offer funding for certain kinds of property.
Those that will lend may require a high rate of interest - and things can be made more complicated still if you want to set up a limited company.
Investing in buy to let properties has been on the increase for a number of years, but concern about BTL investors distorting the market and pricing out first time buyers has led to tax changes which may make becoming a landlord much less rewarding. This has encouraged many to look at the possibility of creating a limited company.
Using a limited company or Special Purpose Vehicle is an attractive option. Limited companies benefit from the lower rate of corporation tax compared with income tax charged on earnings generated from rental income and are thus favoured by investors.
Companies classified as SPVs, dealing solely in rental properties, have an increasing number of options available to them when it comes to financing property.
For buy-to-let investors, SPVs only hold the property as an asset and channel the income and expenditure of their buy-to-let activities. Many landlords are now purchasing rental property via an SPV limited company as changes to tax relief substantially increase finance costs for individual landlords.
An SPV can be set up easily online in a few minutes. It simply requires a relevant SIC code. The Standard Industrial Classification of Economic Activities (SIC) is used to classify businesses by the type of work they do. Most investors require a SIC code from Section L: Real estate activities.
Buy to let lenders offering mortgages to corporate vehicles mostly prefer SPVs to trading limited companies because they are easier and quicker to understand and underwrite, and are perceived as being lower risk.
Setting up an SPV
Many more landlords are now purchasing rental property via an SPV limited company because it can be more tax-efficient now that the changes to tax relief on finance costs for individual landlords have been phased in.
They are very easy to set up. You can either ask your accountant or simply go to the Companies House website and set the company up yourself. An SPV limited company costs £12 to set up, and if done online, it will take just a few minutes to arrange. As long as you intend to use the company just for property letting going forward, it would automatically be classed as an SPV.
Lenders will look at the structure of a company used to buy property and will simply expect to see the Standard Industrial Classification of Economic Activities (SIC) code from Section L: Real estate activities.
However, even with the right code, without in-depth knowledge of the lending industry it can be difficult to find the lenders who can provide the most competitive rates for an SPV. At Rangewell we have the necessary knowledge.
Our client was a first time landlord who wanted to buy a BTL property in a popular commuter town in southern England.
“I needed to find funding quickly - and of course I needed it to be competitive. But I had two problem. The first that I was a first time landlord. The second was that thanks to covid, most lenders were simply not lending. I had to secure the funds quickly to make sure the property was mine.”
He had already spent weeks trying to secure the funding he needed, and the vendors were becoming unhappy. There were other potential buyers in the wings, and speed was essential.
We saw that this lack or experience would be a problem with many lenders, but we knew those who might be able to help.
We also knew those who could act fast- despite the covid problems - and some ways to speed up the process.
Finding a solution
We looked at the deal that the client was looking for, and saw that his profi projections were very viable.
We knew that many property development funders had shut up shop until the post-covid future became more clear - but we did know of one that might be interested and still prepared to lend.
We approached them with full details of the project, and were able to get a positive decision.
We were able to negotiate funding at 3.49% with 75% loan to value. But what made our service particularly exciting was the speed at which we arranged it.
We were contacted by the client on a Friday, and asked for the documents we needed for the application.
By Monday lunchtime, we had secured illustrative quotes from a number of lenders.
On Tuesday, we helped our client make a full application
On Wednesday, the loan was approved and the property was taken off the market.
“I was frustrated by the lack of progress when I tried to arrange the mortgage I needed by myself - but I thought it was inevitable.
Rangewell showed my that I was wrong - and just how quickly they could arrange the funding I needed.”
Why we were able to help
At Rangewell, we work with all the lenders in the UK market, and not only do we know which are most suitable for a particular type of deal or a particular sector, we know those that can offer the most cost-effective solution for an individual need.
Our term includes experts in property finance, and our service is personal. It lets you talk to a BTL funding expert who understands your challenges sector to find a solution that is planned around your business needs.
It means that we can provide expert advice and information for buy to let investors. The world of buy to let and property investment has grown tremendously over the last few years, but while this means that more mortgages may be available, the current circumstances have increased the challenges of securing the mortgage you need.
As independent lending advisors, we can advise you on all the available products and we will scour the market to find you the best deal for your needs. We will help you to decide which buy to let mortgage product best suits your needs based on your individual circumstances and your long term objective
We will discuss your plans, we can then call on our network of lenders, which includes virtually every name in the UK market to get the funds you need quickly.
And when the solution requires going the extra mile and out of the box thinking - you can rely on us for that too.
Just call us and one of our experts will be able to discuss the options, and work out the most cost-effective ways to provide the funding you want - whatever the challenge your business plans present - and in most cases, our services are absolutely free.
To find out more call the Rangewell property funding team for an informal discussion on 020 3318 2613 or email firstname.lastname@example.org
Property investment costs less with help from Rangewell
- Individual arrangements tailored to your circumstances
- Adverse Credit – no problem
- Repayments geared to your revenue stream - including interest roll up
- Understanding the funding challenges for your sector
- Personal service
Talk to Rangewell – the business finance experts