Maximize Your Property Investments with SPV Mortgages
The world of property investment can be complex, especially when it comes to financing.
A Special Purpose Vehicle (SPV) mortgage offers a useful solution for purchasing buy-to-let properties through a limited company.
What is an SPV Mortgage?
A Special Purpose Vehicle (SPV) mortgage allows you to buy a property in the name of a limited company rather than in your personal name.
SPVs are set up specifically for property investment purposes and can offer various financial advantages over owning buy to let properties in your personal name. However, not all lenders offer SPV mortgages, and they often come with slightly higher rates and fees compared to personal buy-to-let mortgages. With different tax rules, it’s important to understand the implications of both personal held and company held property ownership.
SPV Buy to Let
The SPV mortgage route has gained popularity, particularly among landlords, due to recent changes in buy-to-let tax rules around off-setting of the interest. SPV ownership is more tax efficient in this department where the full mortgage interest is considered an allowable deduction.
Setting up a limited company for property investment requires registration with Companies House using specific Standard Industrial Classification (SIC) codes related to property management. The relevant SIC codes include:
- 68100 – Buying and selling of own real estate
- 68209 – Other letting and operating of own or leased real estate
- 68320 – Management of real estate
- 68201 – Renting and operating of housing association real estate
By using these SIC codes, you ensure that lenders can offer you their mortgage products. With different SIC codes, this would suggest that the company is trading in a different capacity which then limits the lenders that will allow your application.
Benefits of an SPV Mortgage
Tax Efficiency
One of the main reasons investors choose SPV mortgages is the potential for greater tax efficiency. Holding properties within a limited company can be more tax-efficient for higher-rate taxpayers, as it allows for lower corporation tax rates and the ability to offset mortgage interest against rental income. With personally held buy-to-let properties, the full mortgage interest is not considered a cost that is completely tax-deductible. It’s important to take professional advice about this from a qualified tax adviser.
Higher Borrowing Potential
SPV mortgages may enable investors to borrow more compared to personal buy-to-let mortgages due to the lower stress tests due to the more tax efficient treatment to the limited company. This can be particularly advantageous if you are looking to expand your property portfolio and need to borrow the maximum.
Limited Liability
Using an SPV structure also limits your personal liability. Any financial risks associated with the property investment are confined to the company, providing a layer of protection for your personal assets if something were to go wrong with the investment. This may be different if personal guarantees are a condition.
Find out Your Options
How to Get an SPV Mortgage
Setting Up an SPV
Before applying for an SPV mortgage, you need to set up a limited company specifically for property investment. Register your company with Companies House and ensure you use the appropriate SIC codes. This step is crucial as it determines your eligibility for certain mortgage products. If you prefer, you can ask an accountant to do this for you.
Finding the Right Lender
SPV mortgages are typically offered by specialist lenders rather than mainstream banks although this seems to be changing with more mainstream lenders coming to market (for example, Metro Bank in July 2024). It’s essential to work with a knowledgeable mortgage broker who can connect you with lenders offering the best terms for SPV mortgages, that match your personal situation.
Affordability Assessment
Lenders will assess the affordability of the mortgage based on the rental income generated by the property. They may require detailed financial projections, including high, medium, and low-season rental figures if you are financing a holiday let property.
Lenders will usually ask about your own personal income and may even have a minimum income criteria, such as £25,000 before they lend to you. Plenty of lenders can however work from just the rental income.
Required Deposit
Most lenders require a deposit of around 25% for SPV mortgages, although some may accept a 20% deposit depending on your financial situation and the lender’s own criteria. Products change constantly which may mean the lender does not always have this available so best to check with a qualified mortgage adviser.
Advantages and Disadvantages of SPV Mortgages
Advantages
- Tax Benefits: Potential for lower tax rates and the ability to offset the full mortgage interest payment.
- Higher Borrowing Limits: Ability to potentially borrow more than personal buy-to-let mortgages due to the lower stress tests.
- Liability Protection: Limited personal liability as financial risks are confined to the company rather than the individual, unless personal guarantees are a condition.
Disadvantages
- Potentially Higher Rates and Fees: SPV mortgages often come with higher interest rates and lender fees.
- Complex Setup: Setting up and managing a limited company requires additional administrative work and costs.
- Specialist Lenders: Fewer lenders offer SPV mortgages compared to personal buy-to-let mortgages, which can limit your options.
Conclusion
Securing an SPV mortgage can be a strategic move for the right property investors looking to maximise their returns and benefit from tax efficiencies.
While the process can be complex, taking professional tax advice and working with an expert mortgage broker like Kerr & Watson can make all the difference. We offer personalised advice and support to help you find the best SPV mortgage deals, tailored to your unique circumstances.
Contact Kerr & Watson today for professional mortgage and protection advice.
