Case Study – Remortgaging Personal Portfolio To Incorporation
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With a growing portfolio of four properties in central London, including two substantial multi-unit freehold blocks (MUFB), our clients were looking to incorporate their investment.
With existing lending marginally in excess of £1 million and the portfolio set up in personal names as part of a partnership, the clients smartly took professional accountancy advice and it was recommended that the right solution would be to re-mortgage their existing portfolio in personal names and then incorporate to take full advantage of the tax benefits, whilst simultaneously raising £2 million in capital for further portfolio expansion.
The husband and wife duo then set out to find an expert broker with experience in high-level incorporation. After a quick Google search, they discovered our website and called for an initial discussion. Buy to let adviser Adam was the broker to heed their call.
After an initial phone call with the clients to discuss all of their needs, Adam was faced with several complications that called for his expert criteria knowledge and lender know-how.
Initially, the clients wanted to secure a single mortgage facility for all four properties with the ability to use the same lender for their business banking for added convenience. However, Adam quickly identified that this route would cost the clients considerably more and would lead to less flexibility for their portfolio long term. Ever putting the clients’ needs first, he recommended that they could re-mortgage each property individually but with the same lender, thus achieving their same goal without the additional financial penalties. The clients were more than happy with this suggestion as it would save them thousands and decided Adam was indeed the broker for them.
Adam quickly set to it to discover which lender would allow the client to re-mortgage each property in their personal names, offer the best rate and then incorporate without incurring early repayment charges (ERC). And this is the key, to allow the incorporation to take place without further significant fees being levied.
After thoroughly comparing a wide range of deals and personally calling key senior contacts within the sector, Adam identified specialist lender Paragon as a suitable lender. They would allow a smooth transition to limited company without charging ERCs part way through a 5 year fixed deal.
Although one of the MUFB properties was technically outside of Paragon’s usual lending criteria, Adam was pro-active in his approach and personally contacted the lender at a senior level, to discuss the strength of the clients’ portfolio and due to the quality of Adam’s communication, Paragon agreed to make an out of policy exception following direct discussions with the client and The Buy to Let Broker.
With the help of the case management team, the team proceeded with all of the separate mortgage applications, however, during the process, two further hurdles presented themselves, that required Adam’s due diligence and expertise.
The first hurdle was that one of the clients’ properties which they had built currently didn’t possess a New Build Warranty (currently something that lenders are requiring more and more for converted property currently), so would traditionally be deemed unsuitable by some lenders for a remortgage. Adam was again proactive in his help and due to the strength of the case that he presented and the fact that the property was converted 7 years ago, this was allowed as an exception.
It further transpired that the partnership was actually only owned in one of the clients’ names, which would require a transfer of equity to allow the lending to progress. Dedicated to delivering results, Adam communicated with the solicitor and accountant to establish that his solution wouldn’t incur any unseen tax liabilities and that SDLT (Stamp Duty Land Tax) wouldn’t be applicable at the date of transfer – and the potential crisis was avoided.
Having mitigated all of the potential problems that could have derailed the application and create delays, as well as ensuring that our client entered into the transaction with his eyes wide open, Adam was able to process the remortgage applications to completion and the clients are now working with their solicitor and accountant to finalise the incorporation of their entire portfolio to move them away from high levels of personally geared taxation to a more efficient and controllable tax environment for their specific circumstances. (Important to note – please always take take advice for your own specific scenario)
Now loyal clients of The Buy to Let Broker, thanks to Adam’s hard work and dedication the clients not only received a cost effective solution to their problem, but also saved even more than expected and can now progress with their portfolio expansion.
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