Over recent years there has been an increase in companies applying for mortgages. LLP mortgages are typically used for investment purposes; however they can be used for residential purposes too.
Although mortgages can be taken out by an LLP (Limited Liability Partnership), it certainly isn’t a simple process. This article will explain the various methods of how an LLP can get a mortgage. In addition, we’ll also look at the different types of lending criteria where an LLP is concerned.
Our advisors specialise in mortgages for the self-employed and have helped many clients secure mortgages through limited liability partnerships. It’s important to receive specialist advice in this field, as brokers are able to package your application to the most suited lender for your business.
You can also speak to an advisor if you have a specific enquiry by calling or making an enquiry below.
How can an LLP gain mortgage approval?
LLP businesses can vary in the way that they’re set up. For instance, the number of directors involved, equity shares and so on. It’s crucial for advisors to understand the nature of the LLP and the way that its structured before approaching a mortgage lender.
Getting a mortgage through an LLP is a lot more complex than mortgages for the employed. Mortgages for the self-employed tend to get scrutinised by underwriters a lot more in comparison. This is because self-employed mortgages are deemed higher risk. A mortgage through an LLP is of course classed as a self-employed mortgage, so you can start to see why mortgage approval is far from straightforward.
The main difference in lender criteria is the way that income from the LLP is assessed. For instance, lenders will assess the LLP on the following:
- Length of time the LLP has been trading for
- How the LLP is set up (partners, shares, directors, etc)
- Declared net profit of the applicant/LLP (or total income received)
- Whether or not the LLP has any outstanding debt
- Nature of the LLP
Certain lenders may advertise slightly higher rates for mortgages involving limited companies or limited liability partnerships. This is especially true where investors have created an SPV (Special Purpose Vehicle) such as a registered business solely created for property investment.
How much can an LLP borrow?
Each lender has different variables in how they’ll calculate maximum mortgage amounts. The majority of lenders generally lend between three times your annual income as a minimum and around five times your annual income as a maximum.
Lenders will also need to check the affordability of the borrower, which is standard practice for any mortgage application. As self-employed applicants won’t have payslips and a set annual income, lenders have to distinguish the income in a completely different manner. For instance, an LLP mortgage will be assessed on the business income, in the form of finalised accounts or SA302 documents. Lenders will only accept official documents that are either signed off by an accountant or official documents from the HMRC.
If you’re a director of an LLP but want a personal mortgage, this is also possible. This may be better suited especially if the property you want to purchase is for residential purposes.
Can a newly established LLP apply for a mortgage?
The length of time an LLP has been trading for can make all the difference in getting a mortgage. An LLP that’s been trading for ten years can show more stability and less risk than an LLP that’s only been trading for one year. That said, the length of time an LLP has been trading for is only one variable in the assessment. The LLP that’s been trading for ten years could be drowning in debt, so it all depends on the overall quality of the application.
The majority of lenders will only lend to Limited Liability Partnerships that have been trading for at least three years. Having accounted for three years can show lenders how stable the LLP is, along with the income generated over this time period. Lenders can then make an informed judgement of whether or not the mortgage is affordable. For instance, if an LLP was established only six months ago, it gives lenders little insight into the financial capability of the business.
Despite most lenders requesting accounts for three years, there are specialist lenders that may offer mortgages with accounts for two years. Even if an LLP has only just filed their first year’s accounts, specialist lenders may be willing to lend. This is subject to other criteria, such as net income, debt and so on.
As each business varies, each case is assessed in its own unique way. You can speak to our advisors who can then gain an understanding of your business to give you more information on whether or not a mortgage is likely.
Can an LLP apply for a buy to let mortgage?
Getting a buy to let mortgage for an LLP can be easier in comparison to a residential mortgage. Some lenders offer buy to let mortgages solely for companies. Rates tend to be slightly higher than conventional rates, due to the increased risk with lending.
The increase in risk arises due to the limited liability of the business. For instance, if the mortgage fell into arrears, the individuals in the business wouldn’t be liable for any company debt, the company itself would be liable. As a result, lenders may also include clauses in their mortgage terms to hold directors of the LLP accountable in cases where loans aren’t repaid.
The deposit required is usually higher for a buy to let mortgage in comparison to a residential mortgage. This is irrespective of whether or not the applicant is an LLP or an individual. Most lenders insist borrowers have a 25% deposit. Headline rates tend to start at 60% loan to value. Despite this, there are still lenders that may offer buy to let mortgages with deposits of just 15%.
The majority of buy to let lenders now pay more attention to the rental income generated by the property, as this is what will essentially cover the mortgage payments. Nonetheless, lenders still need to be confident that mortgage payments can be met whilst the property isn’t in any receipt of rent.
Can an LLP with debt apply for a mortgage?
If an LLP has debt or has credit problems, then it will become difficult to get a mortgage. That being said, it is possible for an LLP to get a mortgage even with debt and bad credit.
Debt and credit issues can cause an LLP to be deemed high-risk, however it also depends on the nature of the debt and the credit issues involved. Lenders will look for details such as the number of creditors involved, the amount of debt and the general credit history of the business.
There are also specialist lenders that may be willing to offer mortgages for an LLP with bad credit. As the risk is deemed to be higher for adverse credit cases, lenders may charge higher interest rates or insist larger deposits are made.
Speak to an LLP mortgage specialist
Our advisors understand that all businesses are different. Lenders will need to know the fine details of the LLP, such as the number of directors, shareholdings and profits. There’s a lot more that goes into a mortgage for an LLP, such as maximising affordability and securing the best possible deal that’s available.
As a business, you’ll want to ensure that you’re not paying over the odds for a mortgage. Our advisors are considered to be whole of market and can shop around for the best deal you’ll be eligible for. Finding the most suitable mortgage goes a lot further than simply finding the lowest interest rate, especially where a business is concerned. You can call today or make an enquiry below to get started.