Category: Articles
Tags: Commercial

Company Mortgages Against Residential Property

Many investors decide to buy or refinance their property in the name of a Proprietary Limited (Pty Ltd) company, for a variety of asset protection and taxation reasons.  However, financial institutions treat these loans differently than standard home loans.

How do financial institutions view company home loans?

What many property investors do not know is that it is often harder to get approval for a standard home loan when borrowing under the company name than it is if you were to borrow as a private customer.

In fact, some financial institutions refer these loans to their business banking division and charge higher interest rates, even though there is very little difference between a loan to buy an investment property in a company’s name compared with in an individual’s name.

 

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What is my borrowing capacity?

  • Company Home Loan: Borrow up to 95% of the value of the investment property that is being purchased.
  • Company Low Doc Home Loan: Borrow up to 80% of the value of the investment property that is being purchased.
  • Company Loan Commercial Property: Borrow up to 75% of the value of the property.  For specialised or illiquid assets this may be reduced to 50% LVR.

Note that each lender has their own maximum loan amount and applicable lending guidelines.

Company loan structure

When borrowing in the name of a company, the company will then own the investment property, the company will be the borrower and all directors of the company will be required to guarantee the loan.  Shareholders and company secretaries are not usually required to be a guarantor.

Example:  John Smith is the director of 163 Pty Ltd.  Both him and his wife, Rachel Crawford, who is not a director, each own 50% of the shares in the company.  If they buy an investment property for the company, the loan would be setup as follows:

Borrower: 163 Pty Ltd
Mortgagor: 163 Pty Ltd (163 Pty Ltd is the owner of the investment property)
Guarantor: Rachel Crawford (Rachel is not required to be a guarantor as she is not a director)

Are the company’s directors responsible for the loan?

It is a common misconception that if a loan is in a Pty Ltd company name the directors are not liable for it.  If the company is unable to pay the loan, the bank can read more>>

 

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