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  • Mortgages & Finance

    Do I have a problem (Floating Charge)?

    Hi all,

    I have a number of properties in my own name, but like many landlords I have setup a limited company for tax efficiency due to the section 24 mortgage interest changes.

    We bought our first property in the limited company back in Feb 2017 using a mortgage through Paragon, and as part of that Paragon took a floating charge over the company. At the time I was just told that this was normal for company mortgages, however now I'm wondering if this is going to be a problem as we plan to buy more properties through the company this year.

    So let;s imagine we find a property that we want to buy through the company, and we find a good mortgage deal with TMW (Just an random lender for the purposes for the example)... will TMW have a problem with the fact that Paragon have a floating charge over the company?

    If it is a problem then I guess my only option is to remortgage the existing property away from Paragon and pay the ERC (It's on a 5 year fix, so I can't just wait for it to expire) to a lender that doesn't require a floating charge?

    Thanks in advance,

    Ben

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    Haven't lived through this issue, BUT if you have another property then the lender will take a mortgage on that property, which SUPERCEDES the floating charge. This, together with the personal guarantee and perhaps a share charge, should be sufficient. That said, the floating charge would take priority over cash assets in the company. I was offered a mortgage with this term and rejected based on the floating charge. I've enquired with other lenders and know that they don't require this. Just my tuppence....

    be interested to hear from brokers...

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    The market has moved on and usually a floating charge is not required. Lenders tend not to publish their views on this (and just refer to acceptable security). It could be an issue so you are right to consider this issue.

    A good broker would liaise wth the lender up front to ensure wouldn't be an issue. If the lender itself does not want a floating charge it's hard to see why they would be bothered that someone else has security over cash balances. That's for a broker to use his charm to ensure underwriters accept this point.

    Expect a personal guarantee but I'd be very surprised if they ask for a share charge as this will create potential AML issues for new loans.

    so in conclusion a few lenders still want a floating charge and they need to be ruled out. Others it's about being up front and sensible discussions but it should be ok. Worse case scenario you use a second company.

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    Chartered Accountant, Tax Advisor and Mortgage broker

    (and BTL portfolio owner)

    stuart@johnsonsca.com

    02039077022


    Hi Ben

    You have loads of options and in fact we are arranging forward funding facilities with Paragon (initial £2m tranches, escalating to £5m for the 'right' candidates) - so to discuss your options, contact the team anytime.  I would suggest speaking with Stephen Pears at stephen@hdconsultants.net to discuss further.


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    Thanks all for your replies,

    So in summary it could be a problem for some lenders but not for others.

    I guess for me my problem will be that I’m likely to buy my next property BMV from a motivated seller using bridging finance and then remortgaging after 6 months. Any delays on the remortgage (e.g. if I find out late in the application process that the chosen lender wont accept Paragons floating charge, so I have to find another lender) could mean I exceed the terms of the bridging loan (I’d probably go for an 8 month loan, 6 months due to the remortgage rules plus 2 months to actually remortgage), which could be expensive.

    I guess I’d have to make sure my chosen lender doesn’t have a problem with it before I actually apply, although based on past experience I’ve found that what they tell you before you apply and what they say later on are sometimes different.

    Thanks

    Ben

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    Paragon no longer require a floating charge they did away with it over 12 months ago, but for some strange reason they still send out all the floating charge paperwork and imply it’s required. But all they actually require is a bog standard legal charge on the specific property you are securing the loan on, l would look at getting the floating charge removed and replaced with a legal charge or you may find that you limit your options if you look to refinance.

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    Is this documented anywhere?

    I currently have mortgages in my Ltd co with Pargon, SBI, CHL, N&P, Landbay and shortly LendInvest.

    I've never had a problem obtaining finance, but I have had to allow floating charges, debentures and personal guarantees. If I can remove the Floating Charge then that would be something

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    Can’t say I’ve ever seen anything documented on this for Paragon, but I have ltd company mortgages with them they always send the floating charge paperwork, but as both my broker and solicitor are aware it’s no longer a requirement we don’t even bother sending that paperwork back, they still require a personal guarantee though. No one at Paragon can tell me why they still send the paperwork now it’s no longer a requirement they tell me they just do ?

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    @dmendez Both Paragon and LendInvest removed the requirement for a floating charge in January and August respectively. Worth speaking to them and seeing if they will remove a floating charge if they have one.

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    Great thanks.

    I presume I can just ask Paragon directly and they'd take care of it, or would I need to use a solicitor?

    Thanks

    Ben

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    Just to let you know that I called Paragon and they have indeed agreed to remove the Floating Charge! Great news.

    Thanks for the excellent advice... this could make a big difference when I come to get a mortgage on our next property.


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