Ensuring your deposit source is acceptable to your chosen lender is a vital part of the mortgage application process, as getting it wrong can cause severe delays later down the line. Which deposit sources are most widely accepted by Limited Company buy to let lenders?
While this may sound like a boring subject, the source of deposit when borrowing through a Limited Company can be a stumbling block that only appears at post-offer stage. As such, this can cause significant delays, or derail the deal altogether, just when you’re about to exchange contracts.
Below we’ve listed the most common deposit sources for buy to let Limited Company mortgages to help you ensure your application is as seamless as possible:
Personal savings
Personal savings are the simplest way of providing a deposit. You will need to show a build-up of savings in your account, usually by providing at least three months’ bank statements. If you’ve received a large sum into your accounts, underwriters will likely want to know where it came from (the source) as part of their anti-money laundering checks. Traditionally, you would move this money into your Limited Company through a director’s loan.
Gifted deposits
Gifted deposits from close family members are acceptable to lenders, but usually need to be from parents or immediate family. Lenders will often request to see proof of funds in bank statements and may require the “gifter” to complete a ‘gifted deposit form’ to confirm they’re not loaning you the money. Typically, the family member gifts the money to you, who would then move this money into the company through a director’s loan.
Shares
Using shares as a deposit source isn’t necessarily a popular option, but in theory, they are acceptable. The lender will want to see the contract note for the shares and potentially the funds in the account once the shares are sold. Again, the proceeds from the sale of the shares would then become cash which you would then move into the company via a director’s loan.
Remortgage proceeds from personally-owned property
You can remortgage a property held in your personal name to raise capital in the process. You can then move the funds into your Limited Company, traditionally by way of a director’s loan.
Remortgage proceeds from an SPV Limited Company owned property
Like the above, you can also remortgage equitable property held in your Limited Company and use the released funds as a deposit to purchase via the same company. All Limited Company buy to let lenders accept this form of deposit.
Sale of property
Rather than just remortgaging an existing property, you may want to sell one to then use the proceeds to form a deposit for a new purchase or purchases. Depending on the property’s value and the equity within it, you may be able to put deposits down for more than one property and expand your portfolio more quickly. Lenders will request either bank statements showing funds going into the Limited Company account or a completion statement from your solicitor.
Inheritance
Inherited funds are accepted as a deposit source by many lenders so long as they receive a letter from the solicitor confirming the details. By its very nature, inheritance and probate scenarios can be time-consuming, so finding the right lender is essential. Our expert brokers will help with this.
Deposits from overseas
These are perfectly acceptable, so long as you’re transferring the money from a country signed up to the Financial Action Task Force (FATF), the global watchdog for money laundering.
Intercompany loans
This is something we’re seeing more frequently than a couple of years ago, as for some, it can be more tax-efficient. Landlords typically use three main structures, but in essence, it’s moving money from an existing company to another (established or new). Whereas withdrawing cash from a current company into your personal name may trigger a tax payment, there are ways of moving it into another company to avoid this.
You will find that each lender is different in terms of what it will/won’t accept, and you will need to take professional tax advice to decide the most appropriate option for your circumstances. Your options include:
- Intercompany loan: simply a loan from one company to another.
- Subsidiary company: you set up a new company that is 100% owned by your existing company, meaning money can pass from the parent company to the subsidiary. Our clients with funds in a Trading Company often use this as buy to let mortgage rates tend to be more competitive for SPV Limited Companies than Trading Companies.
- Shareholder Company: your newly created SPV Limited Company purchases shares in your existing Trading Company in exchange for the issue of further shares in the SPV. The Trading Company can now lend money to the SPV to fund the purchase of investment property. In this scenario, your SPV owns your Trading Limited Company (the opposite of the above). The benefit is that this keeps your SPV owned by yourself, rather than another company. While not all lenders will accept this structure either, it is sometimes favourable as it's slightly easier to underwrite.
While this is becoming a relatively common practice, a few Limited Company buy to let lenders still aren’t comfortable underwriting these types of investment structures. However, we certainly have access to many that do, so it’s best to speak to one of our brokers to see what your options are. You must seek professional tax advice before making any decisions about Limited Company structures.
If you’re looking to finance a buy to let property through an SPV Limited Company and your deposit source is NOT on the above list, don’t panic. Some of the more specialist lenders are often more sophisticated and will take a more flexible approach to your application.
What next?
If you have any questions about deposit sources for Limited Company buy to let property purchases, please do not hesitate to contact our expert team on 0345 345 6788 or submit an enquiry here to speak to one of our experienced brokers.
*Article updated November 2023
