Updating post from Reddit.
I've spoke to a few brokers this week and have been left more confused than when I set out.
I sold a company through an asset purchase around 2 years ago. As part of a longer-term strategy, I decided to keep the cash within the LTD company and invest it from there.
I now have just under £1M in index funds and a £550k~ property that is owned in full.
I'm looking to get a mortgage on the property to pull some cash out.
Originally, I wanted to do this by moving the property to a subsidiary company (owned by my current LTD co) that would be an SPV for property ownership. However, I was advised this would increase my mortgage rates, as only specialist lenders would deal with a group structure like this.
Another broker told me to keep my current company as the property SPV and instead move the index funds out to a separate company, which would mean moving the cash through an inter-company loan agreement (more admin). The reason being that holding £1M in index funds could put off the lender.
How does everyone else structure their ownership through a LTD company? Is holding other investments, such as index funds, really that much of a problem for lenders?
I would of expected the holding of more assets to be a positive, as they know the company has much more value than the property itself. I guess not though!
Any insights would be greatly appreciated.
Some lenders can be funny about these things, especially when it is not completely straightforward. I think they are worried about the LTD being an investment company rather than a trading company.
I think the brokers you are speaking to are out of their depth. You will be best speaking to one of the more specialist lenders/banks/brokers. Would a Lombard loan be cheaper than a mortgage?
Yes - it’s a problem for lenders as they want the company to be for property investment only i.e SPV.
If the company is trading in other areas and gets into financial difficulty then the property assets are potentially at risk which isn’t ideal for the lender as they want vanilla lending.
Also most BTL lenders for Ltd Co will require a guarantee so won’t accept another company as the owner.
The set up you’ve outlined appears more commercial so you might need commercial lending.
>I decided to keep the cash within the LTD company and invest it from there and £550k~ property that is owned in full. I'm looking to get a mortgage on the property to pull some cash out.
It would be hard, not impossible, to get a BTL Mortgage in a former trading company, and perhaps further limited by its continuing to trade with index funds. Mortgage lenders prefer Special Purpose Vehicles (SPVs) that do nothing (or have done nothing) other than own and rent out homes.
>only specialist lenders would deal with a group structure like this.
This is true. Lenders do not like complicated structures. While only specialist lenders allow group structures, many lenders allow "intercompany loans," as in Trading Co loans the money to Property SPV (but doesn't take share ownership).
The problem is that you already own the property. So, buying it in another SPV could trigger SDLT/CGT, etc.. This is probably why the other adviser recommended moving funds and converting the trading company into SPV. However, because it was previously, trading, options would still be limited (but a few options).
>How does everyone else structure their ownership through a LTD company?
No complex ownership. An SPV is owned by up to 4 shareholders/directors; the deposit funds can come from loans either from the shareholders/directors or SPVs.
This doesnt help you, you already own the property.
>I would of expected the holding of more assets to be a positive,
It is, but there is also the unknown. Liabilities could crop up and cause issues with the security on which the lender's mortgage is based. So, they want everything as simple as possible.
Plus, you may say, "There are no potential past liabilities." Well, that's fine, but they have to check that, which means costs and underwriting. So you're no longer a vanilla borrower; as such, you are pushed into commercial lenders who are happy to cater to a more bespoke service. Which is why you were "advised this would increase my mortgage rates."
>I've spoke to a few brokers
Nothing your brokers have said was wrong; however, maybe the third can help you find the best route forward. The team at Cyborg Finance at [email protected] would be happy to help you.
I'd heed caution when the adviser tells you to move the index funds, as even after that, you would still have limited options. A door or two will open up, but the largest BTL lenders, TMW, for example, won't touch it.
Those boxes won’t tick themselves!…. Trouble is even though you’ve got a reasonable asset value you are still in mainstream lending, and not quite to the levels the private banks will look at so the banks and brokers don’t really have ready made solutions.