buy to let and commercial mortgages through an SPV with share holders.

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    buy to let and commercial mortgages through an SPV with share holders.

    We are looking to purchase property through a LTD company. The director has good credit and the share holder has bad credit. They are not related or cohabiting.

    Will the lender care how much of the company a share holder owns, if so what is the limit?

    The money for the deposits has been made from the profits of a property technology company owned by the share holder. That company does not own any property but it does has strong accounts and became profitable after 6 months of trading. It's profit has increased since the coronavirus lockdown.

    Will the title deeds be in the name of the company or the director?

    Many thanks for your help.

    #2
    If the shareholder with the poor credit profile keeps their shareholding to 20% or less then that should not affect the approval of a loan given that at this level he/she would not be required to provide a full Personal guarantee; a few lenders set the shareholding at 25%.
    The Title Deeds are in the company’s name notregistered in the directors name as it is an asset owned by them.
    My advice is to create an SPV with the appropriate SIC code to borrow monies in connection with property acquisitions, monies can be loaned to this company.
    I would speak with your accountant to ensure you receive the best tax advice.

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      #3
      I should have mentioned that the person with the poor credit record should not be registered as a director as this would result in the applications being declined. He would be considered high risk. Apology for not having mentioned this in my response.

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        #4
        Many thanks for your advice loanarranger. I have been trying to find the answer to shareholder percentages.

        Just to confirm, the properties will be owned by the company and not the director. I know it's essentially the same thing but we plan to transfer the company to the shareholder once he has good credit.

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          #5
          Also, I know it's a very general question but if a person with bad credit (a default from 2017) brought a property with cash would that fix his credit rating to the level of being able to get mortgages to buy more properties?

          This is not something we would like to do due to tax but it's been nearly 2 years now and my accountant is basically telling me that hording all this money is a very poor decision from a tax point of view. Obviously mortgages are the route we want to take, hence us trying literally everything to make this happen.

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            #6
            Originally posted by Bluebull View Post
            Just to confirm, the properties will be owned by the company and not the director. I know it's essentially the same thing but we plan to transfer the company to the shareholder once he has good credit.
            Any lender is going to require personal guarantees from the company owners, and I can't imagine they would allow the transfer of the company ownership in this way.
            Poor credit takes a long time to fix.

            You should be aware that taking out a mortgage as a company, knowing that the intent is to transfer ownership of the company and not declaring that the lender is getting close to a fraud.

            Also, I know it's a very general question but if a person with bad credit (a default from 2017) brought a property with cash would that fix his credit rating to the level of being able to get mortgages to buy more properties?
            They'd be a bad credit risk with a property, which might improve their credit rating, but it won't offset the default.
            What was the default on?

            When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
            Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

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              #7
              Right let’s get down to basics
              Simply buying a property for cash will not improve the credit score or perceived heightened credit risk factor.
              If the default was listed in 2017, the next question is has the debt been repaid or outstanding, if the latter then the default remains on record for 6 years; having said that , some lenders might accept that it was a one off and subsequently might consider such an application but might be on a slightly higher risk related rate.
              Rather than the company selling the property to the shareholder why on Earth not ask the lender to have him underwritten to allow him to be registered as a Director , I say this as the transaction would be treated as a sale & purchase both of which carry their own potential tax liability issues not least the fact that if the shareholder were acquiring the asset then as he has at least one property he will have to pay the SDLT.
              I agree with JPKeates what is being suggested re the transfer will require the lender being repaid the monies as there is a charge against the company and property so a new mortgage or cash payment would be required to discharge the liability.
              Never ever think you can pull a fast one over a lender or HMRC so as I always say you both need the sage advice of a good tax accountant who will tell it warts and all. Stay on the straight & narrow and life becomes straight forward.

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                #8
                With regards to the default, I've spent many hours of my time trying to get round it and there are no alternatives other than to wait out the 6 years once it drops off. Period.

                My tax position is extremely complex due to multiple income sources.

                I took your advice and spoke to a lender who suggested being a shareholder at less than 20%

                The mortgage term would be for 8 years and I was hoping afterwards I could either increase my holding or become a director as I would have good credit by that time, the mortgage would be paid off earlier than 8 years and before any changes happen. I was hoping that it would not be viewed as a dishonest bait and switch tactic as no changes would be made until the mortgage is repaid.

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                  #9
                  Clearly the default must be of a significant level which precludes you from being able to discharge the debt, also as you state your income comes from multiple sources would it be presumptuous to assume that theses are not all shown on your tax return.
                  i am also concerned at the mortgage term being restricted to 8 years, unless you are a very senior citizen I can only assume that the lender cannot be considered a prime lender and by association the terms must be far higher than the norm given that lenders can take loans up to age 80 and beyond.
                  Lenders have a cautious approach to individuals who have recorded credit issues irrespective of whether they are defaults or CCJ’s, and whilst a very small minority might accept a modest outstanding default with a good two/ three years recent good conduct anything outside will preclude you from being an approved borrower and any involvement must remain with you being Avery small shareholder but with no influence on borrowing or future strategy.
                  i can only wish you the best going forward.

                  Comment


                    #10
                    The default was a small amount but the reason it's a non starter is because the interest rate I was quoted for a mortgage in my own name was 5.4%.

                    All the income is shown. However, some of it is through those respective limited companies. I am learning to be less of a scrooge and just pay myself a decent wage.

                    What would be the issue with a short mortgage term? I did look into 20 year mortgages but there are penalties for paying off too much too soon. Also, am I correct in assuming it would pose other difficulties as we would be changing the structure of the company before the mortgage term is up?

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                      #11
                      Good morning Bluebull
                      Thanks for updating.
                      I cannot see how not paying off the default has anything to do with the mortgage rate you are being quoted , they are entirely different matters. If you have the actual amount available , simply pay it off and make your proposition of greater interest to lenders.

                      Taking any mortgage normally only carries Early Redemption penalties during the initial incentive period after which the rate reverts to the variable rate or depending on the lender you might be offered a loyalty switch rate, if neither are of interest then you can , subject to no issues arising remortgage the current borrowings and maybe raise additional capital if you have a new acquisition in mind. Some lenders also allow you to repay up to 10% of the outstanding loan each year during the incentive period without having to pay an Early Redemption Penalty.

                      You say changing the structure before the mortgage term is up , any changes including the adding or removal of a director can only be done with the full consent of the lender and they will certainly want a similar Personal Guarantee from the new appointee and if necessary and depending on the shareholding of the person wishing to be removed as a Director still insist on their PG remaining in place, all of which is hypothetical.

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                        #12
                        I thought SPV are limited companies with director and shareholder being the same person. The mortgage lender registers a charge over the property and the SPV company plus the director's PG.

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                          #13
                          loanarranger,

                          The default is paid monthly. The reason I haven't paid the full amount is because i disputed the default and took it to the financial ombudsman. I am paying a minimum amount as I'm still looking for solutions to dispute the default. For me it's not about the money, it's about the effects the default is having on my credit file. I have numerous ventures that are essentially on hold until the default is gone.

                          I have been approached by investors wanting to fund my property ventures although I still want to see if there's a way to do this myself. The JV option with a friend would be ideal as I end up with 100% ownership.

                          A lender contacted me and said I could use the net profit from my limited company as an indication of my earnings. Would this give me a lower interest rate? My companies balance sheet is strong showing increasing profit month on month.

                          I think there's a bit of confusion in this post and sorry if I've not made myself clear. I am saying that i DO NOT want to change the structure of my company before the mortgage term is up. The reason I don't want to do this is because I assume the lender could call in the whole debt.

                          Comment


                            #14
                            Originally posted by Gordon999 View Post
                            I thought SPV are limited companies with director and shareholder being the same person. The mortgage lender registers a charge over the property and the SPV company plus the director's PG.
                            You can have non director share holders. From what I've learnt some lenders won't credit check a share holder that has less than 20%.

                            Loanarranger I did reply to your post but for some reason it was flagged as spam.

                            Comment


                              #15
                              Originally posted by Gordon999 View Post
                              I thought SPV are limited companies with director and shareholder being the same person. The mortgage lender registers a charge over the property and the SPV company plus the director's PG.
                              They can have quite complex structures, the essential feature is that the business only does one thing, usually based on one Asset.

                              Originally posted by Bluebull View Post
                              Loanarranger I did reply to your post but for some reason it was flagged as spam.
                              It's a feature of the forum software.
                              It happens if you edit your post too often after you've first saved it.
                              When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                              Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                              Comment

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