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Mortgages for companies using Directors’ loans as deposit

26 Aug 2020

We are used to dealing with complex limited company structures, particularly companies using Directors’ loans as deposit.

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And, while we stipulate that the limited companies we lend to must be an SPV, specifically with SIC codes relating to property, we do welcome applications from newly incorporated SPVs. That means that if your clients have an existing trading company who are looking to expand into property investment, you can set up a separate SPV. The two companies must have the same director and shareholder structure. The trading company can then lend the SPV the deposit for the property and the property is bought within the SPV.

We do an Optima search on the trading company to ensure they are solvent.

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Limited company funding declaration

The directors fill in a limited company funding declaration form (on our intermediary website) AKA the 'FD' which will verify whether they are making monthly payments on the loan. Typically they aren't and instead the SPV is only committed to repay the deposit loan back to the Trading company on 'Sale of property'.  

However, if there were interest to be paid on the loan, we would deduct that from the rental income as it is an outgoing of the SPV for affordability.

Bank statements

We do ask for both sets of bank statements from the trading company and the SPV to verify the deposit going from the trading company into the bank account of the SPV (if already created). Some of this can happen after offer as a condition of funds release.

The property is then owned as normal by the SPV. The trading company who gave the deposit does not have a second charge on the SPV-owned property or anything like that - which is the same way a Director's loan works, which is why this transaction structure is often referred to as a 'Director's loan'.

To discuss any case with a complex limited company structure, get in touch with your local sales contact today.