Corporate Let Mortgage
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Corporate Let Mortgage
Oliver Potter explains how a corporate let mortgage works.
What is a corporate let mortgage?
A corporate let mortgage is essentially the same as a regular Buy to Let mortgage. But instead of renting to a family or an individual, the property is let to a company.
The mortgage client rents their property to a business, either through a limited company or on an individual basis. That business might then let its employees rent or stay in the property.
How does a corporate let mortgage differ from a standard Buy to Let mortgage?
A standard Buy to Let is let to an individual or a family – basically a non-corporate entity.
Corporate lets are tenanted to business entities for commercial purposes – often employee housing, which is popular these days. A corporate let mortgage is more niche and more specialist than a standard Buy to Let mortgage, but they are the same in lots of ways.
Who is eligible to apply for a corporate let mortgage?
Anyone and everyone, pretty much. The same kinds of mortgage criteria still apply – any adverse credit will be taken into account, for example.
Professional landlords tend to be preferred with corporate lets. When I say professional, that’s just someone with a bit of Buy to Let experience – usually six to 12 months’.
What types of properties qualify for a corporate let mortgage? Are corporate let mortgages available for both residential and commercial properties?
Corporate let mortgages are more for staff accommodation. It’s typically residential properties that they’re renting out.
You can go down the commercial route, and some lenders will allow commercial elements to the property, but usually corporate lets are for staff accommodation. Perhaps you’re renting out a London property to a company, and they offer it to employees who don’t want to have to relocate full-time.
How do lenders assess affordability for a corporate let mortgage?
It’s similar to a regular Buy to Let, where your tenant is an individual or a family. Affordability is primarily worked out on projected rental income.
You’d work out what rent you would get from the company and use that rental figure for the stress test. Usually the rent needs to cover between 125% and 145% of the mortgage interest at a notional rate, depending on the lender.
It can go higher depending on the speciality. For any affordability assessment, it’s best to have a chat and see the specifics.
Some lenders also check the financial stability of the corporate tenant, to make sure you’re not letting to a company that could go bust. They’re generally less interested in what you’re earning personally, but some do set a minimum income.
Can a limited company apply for a corporate let mortgage?
Yes, you can let the property out through a limited company or an SPV (Special Purpose Vehicle). A lot of lenders are getting into that space, and lots of landlords are transitioning to let through limited companies due to potential tax efficiencies. Obviously, I can’t advise on tax, but that’s usually the reason why.
What is the typical Loan to Value or LTV ratio for corporate let mortgages?
You will need at least a 25% to 40% deposit – which is a 60% to 75% Loan to Value. That’s similar to the standard Buy to Let mortgages.
There are some cases where you can put 20% down, or actually even 15% deposit, but those lenders tend to be specialists. In the financing world, anything that’s more specialist or niche comes with additional cost. The interest rates are quite high, so it’s best to aim for 25% minimum.
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How does potential rental income impact the mortgage application process?
With rental properties generally – standard Buy to Lets, corporate lets and even holiday lets – the main affordability assessment is based on rental income.
Sometimes lenders want to see that there’s sufficient supplementary income, either through employment, self-employment or potentially other properties, just in case of rental voids.
Certain lenders even do top slicing, which is basically joining up rental income and employed income to meet affordability. But for the majority of rental properties, the rental amount is fundamental to affordability testing. Obviously, the higher the rental amount, the higher the borrowing potential, and vice versa.
If you’re purchasing a property to rent out, make sure you know exactly what the rental yield would be so you can see how much you can borrow. In this instance, a corporate lease agreement can strengthen an application quite a lot – especially if you’ve been able to secure a nice deal on a property with higher rental income.
Are there specific industries or businesses that lenders prefer as corporate tenants?
Most lenders look for large, stable companies like blue chip firms. They might typically be relocation companies, NHS Trusts, universities and sometimes big trade firms for plumbing or electrics.
You should be okay as long as the company’s got quite a healthy track record – they’ve been stable and they’ve potentially got some history of renting these sorts of properties. Startups might be an issue because there’s no track record of payment.
The same applies if the company’s had an adverse history, where they are losing money, their profit margins aren’t where they should be or they are even facing potential bankruptcy. It’s important to have a good look at the company you’re getting into bed with.
Can I switch from a standard Buy to Let mortgage to a corporate let mortgage?
Yes, you can. The only difference is who you’re renting the property to. It should be fine in principle, but it depends which lender you’re with currently. Some lenders will be happy to transfer over to a corporate let. Others won’t if it’s not in their remit.
Obviously, we’ve got to run the affordability based on the rental agreement you’ve got with the corporate entity. But there’s no reason why we shouldn’t be able to do it.
What fees are typically involved in setting up a corporate let mortgage?
As with a lot of mortgages, there are arrangement/product fees, which vary depending on lender products. If there’s a lower interest rate, there will usually be a higher product fee and vice versa. We will discuss the different products with you.
There may potentially be valuation and legal fees if you’re purchasing a property – the lender may charge to value the property and there may be solicitors’ costs to buy the property and legalise everything.
Even if you’re doing a remortgage and switching lenders, legal and valuation fees may be involved. Obviously we’ll factor those in and make sure it’s cost-effective. Some brokers charge fees, but we don’t, so that’s not applicable.
Bear in mind, too, that potentially you will have higher interest rates compared to standard Buy to Let. It’s a niche proposition, so there is a slightly smaller lender pool.
What else do we need to know about corporate let mortgages?
It’s always a good idea to talk to a broker, especially with these slightly more complex requirements. It’s best to be prepared – to know what you’re getting into and what the costs will be, rather than doing it the other way around where you find a house and then try to fit mortgage deals to it.
You don’t want to come unstuck. We know how to answer all your questions, so pick up the phone.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE SOME FORMS OF BUY TO LET MORTGAGE.