A special purpose vehicle (SPV) is a specific type of company set up by buy to let landlords. As we receive multiple queries about whether an SPV would be beneficial, we have summarised the primary considerations here!
SPVs are most often used as a way to make your property investment business more tax-efficient, or for landlords who wish to separate their business from their personal finances.
For tailored advice, support and recommendations about the pros and cons of using an SPV, contact Revolution Finance Brokers on 0330 304 3040 or send us a message at firstname.lastname@example.org.
What is a Special Purpose Vehicle for Landlords?
An SPV is a type of limited company, and so is a separate legal entity from the individual investor. As such, this is an excellent way of separating any financial risk in your business from your own circumstances.
Since it is a company, an SPV has its own assets and liabilities. This has the benefit of allowing landlords to apply for a mortgage as a business, rather than as an individual.
The financial separation means that if the business gets into financial difficulties, then the impact is restricted to the company and usually does not impact any other side of the business.
Uses of an SPV
One of the main attractions to investing in property through an SPV is tax efficiency. The value of this is higher for higher rate taxpayers or investors with an extensive property portfolio.
A deposit paid against a property by the investor can be treated as a loan to the company. This cost is then offset against the profits achieved through rent, and the debt to the owner is repaid. Offsetting the costs in this way shows a lower profit, and thus incurs a smaller corporation tax liability.
Company tax is different from personal tax, and so mortgage lenders are typically able to offer a higher mortgage value and be more flexible in calculating projected rental income for properties purchased through an SPV.
Another way to use an SPV is to take out a mortgage through a group. The ownership is easier to divide through share ownership, assigning proportional responsibility for keeping up with the mortgage repayments.
The importance of separating financial risk cannot be overstated; your personal property such as your family home does not form part of the security and therefore are kept separate from the business assets.
If you are considering using an SPV to invest in property or deciding whether you will save costs in transferring your portfolio to a company, give us a call and we will be happy to walk you through the pros and cons!
Eligibility for an SPV Buy-to-let Mortgage
As with any other mortgage, each lender has a set of lending criteria that have to be met for them to be able to extend an offer. If you have been turned down by one lender, it may well be that they are not the best suited to your borrowing requirements, and a more specialist lender will be happy to consider your application!
The application process will include enquiries about:
- Your property portfolio and the company structure
- How many directors are in place - often limited to four
- The company ownership structure
- Your credit score and history
- The type of property you wish to purchase, and where it is located
- What the LTV value is on the mortgage lending you are applying for
Applying for a BTL Mortgage as an SPV
If you are a first-time investor, you will likely find fewer lenders on the market able to offer to lend, since many have a minimum number of years experience as one of their criteria.
Experience demonstrates that you will be able to ensure you have tenants for your property, know how to maintain it and have a track record of making good on mortgage repayments.
However, there are specialist lenders who can lend to new SPVs and new investors. You are likely to find the deposit requirements are a little higher, and the interest rates less competitive. If you are looking for an SPV buy to let mortgage as a new investor, give us a call!
Different Types of Property and Buy-to-let SPV Mortgages
The type of property you want to invest in will impact the availability of mortgage lending. Higher risk properties are more difficult to mortgage. They are usually considered riskier to the lender because they expect them to be more challenging to resell should the property ever be repossessed.
Higher risk properties include:
- Blocks of flats or tower blocks
- Residences above a commercial premise
- Prefab concrete properties
- Wood or timber-framed properties
- Homes with thatched roofs
- Corrugated iron structures
If you are looking to invest in a 'non-standard' property, that doesn't mean to say that you won't be able to secure a competitive mortgage. We advise that you work with an expert broker who can indicate the lenders who they know will be able to consider your mortgage application.
Incorporating a Special Purpose Vehicle Company
Setting up an SPV is as simple as creating any other kind of limited company. In the UK, that means registering with Companies House, and letting them know that the business is a buy-to-let company.
You can either incorporate the business yourself on Company House or commission a professional to set this up for you. If you need any recommendations for help with this process, give us a call!
While setting up your new SPV, you will be asked to indicate what type of company you are creating. This is called an SIC code, and the correct code will match with the kind of business, such as real estate.
Deposit Requirements for SPV Mortgages
The typical LTV ratios on an SPV mortgage go up to around 85% of the property value. However, this isn't fixed, and many lenders can be flexible when considering what sort of lending they can offer, and what level of deposit is acceptable.
Your circumstances have a significant impact here - for example, if you are a new property investor, already have a reasonably extensive portfolio, or have a poor credit history; you will need a higher deposit.
As an example, if you are purchasing an investment property costing £200k using a mortgage provider with an 85% LTV ratio, you will need a 15% deposit available; i.e. £30,000.
To understand the sort of mortgage offer you can expect to secure, and what level of deposit you will need to have to be able to proceed with your investment, give Revolution Brokers a call. We will provide personalised recommendations based on your circumstances.
Interest Rates on SPV Buy-to-let Mortgages
Company mortgages tend to carry higher interest rates than residential mortgages. However, using a specialist lender who is comfortable in lending to SPVs and companies is the best way to achieve the most competitive rates.
Revolution Finance Brokers are highly experienced in commercial mortgages and SPV lending and can match you with our network of lenders to ensure you achieve the best deals on the market.
Choosing a Mortgage Lender for an SPV Application
SPV mortgages are a specialist product, which means a mainstream lender is unlikely to be able to offer a mortgage to this type of company.
The tax savings available have driven a considerable amount of growth in the SPV mortgage market, and so there are a higher number of lenders and options to choose from.
Using an SPV Mortgage Broker
A broker can save a lot of time and stress in the mortgage application process, as well as acting as your advocate to negotiate rates and terms on your behalf that are not available in the open market.
By considering your circumstances and ideal borrowing scenario, we scour the UK mortgage market to find the best lenders and the most competitive deals to match with your needs, avoiding any unsuccessful applications to unsuitable lenders.
For advice with finding the right SPV mortgage for your buy-to-let business, contact us today at email@example.com.