Getting a Buy-to-Let Mortgage Through a Special Purpose Vehicle (SPV)
How to setup a SPV and how a broker can help you
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It was once considered potentially lucrative to be a buy-to-let landlord, but various tax changes introduced in recent years have reduced the profit margin. So, it’s important for property investors to arrange their finances tax-efficiently. It’s highly recommended to speak to an independent tax advisor on this subject.
One way to do this is by owning properties through a special purpose vehicle (SPV). This is far less complex than it initially sounds.
In this guide, we’ll explain how SPVs work, how to get a mortgage with one and how the right broker can help you do that.
What is a special purpose vehicle (SPV)?
A special purpose vehicle or SPV is a limited company (or, occasionally, a trust or partnership) that is purposefully set up to own and operate investment and buy-to-let property.
SPVs are popular with buy-to-let property investors because of several key features:
1. Tax benefits
SPVs offer several ways for property investors to reduce their tax bill, particularly for higher or additional rate taxpayers.
- Profits are subject to corporation tax currently at 19%, rather than income tax, which can be as high as 46%
- Post-tax profits can be distributed to directors and shareholders as dividends, who can use their £2,000 tax-free dividends allowance
- Landlords can also loan their mortgage deposit to the SPV as a director’s loan and offset profits from rent payments until the debt has been repaid
2. Joint ownership
SPVs offer a convenient way for a group of people to share ownership of a property investment and divide the proceeds. It’s also easy to add someone new as a shareholder, which can help to reduce your capital gains tax or inheritance tax bill in certain situations.
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Can you get an investment mortgage through an SPV?
Yes. Though most major lenders (e.g. HSBC, NatWest, Barclays) do not lend to limited companies, you can get an SPV mortgage by approaching a specialist lender through a broker who has experience and a strong track record for arranging SPV mortgages.
How to get an SPV mortgage
You can get an SPV mortgage in just a few simple steps.
Step 1: Register an SPV
It’s essential to set up the SPV before buying the property. Lenders will always need to check the company details before they will offer an agreement in principle. If you’ve bought the property as an individual, you’ll have to sell it to the SPV at market value and may need to pay stamp duty and legal fees.
At a cost of £12 plus VAT, it is straightforward to register your SPV with Companies House as you would any other limited company. You can also instruct an accountant or solicitor to do it for you. If you do it yourself, you must take care to select the correct SIC codes for your business activities, for example:
|68201||Renting & operating of housing association real estate|
|68209||Other letting & operating of own or leased real estate|
|68320||Management of real estate on a fee or contract basis|
|68100||Buying & sell own real estate|
You’ll struggle to get a mortgage if your limited company doesn’t have the right SIC code as many lenders will not offer a buy-to-let mortgage to a “trading business”.
Step 2: Speak to a mortgage broker who specialises in SPVs
One of the main reasons many look to own property through an SPV is that it may offer you opportunities to maximise your profit margin, so you’ll want to be sure you’re signing up for the best available mortgage deal. Only a minority of lenders offer SPV mortgages, so speaking to a broker who specialises in this area will help you to find a great deal.
We can put you in touch with an SPV mortgage broker for a free, no-obligation chat. To try our broker-matching service, enquire online.
Step 3: Make your application
There is additional paperwork involved in applying for an SPV mortgage compared to a personal mortgage, but your broker will guide you through it and ensure that all the details are correct. This will help to ensure that your application is approved first time, as quickly as possible.
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Requirements and eligibility
The main requirement for an SPV mortgage is that you have properly registered your limited company as a special purpose vehicle with Companies House, using the most appropriate SIC code(s).
Other common requirements are around:
- Deposit size. Many lenders require a 25-30% deposit for buy-to-let mortgages, though it is possible to find a mortgage with a deposit of 15-20%.
- Portfolio size. Some lenders will only offer portfolio mortgages to limited companies, meaning that your company would need to own three or more properties.
- Number of directors. Some lenders will only lend to limited companies with a maximum of four directors.
Lenders and rates
Lenders who offer mortgages to limited companies include Paragon, Precise Mortgages, Aldermore, Zephyr Homeloans, and Quantum Mortgages. There are others too.
SPV mortgages are more complicated than personal mortgages and involve additional paperwork, so you should expect the rates and fees to be a little higher (typically between 0.5%-1% above standard mortgage rates).
If you’re considering setting up a special purpose vehicle in order to purchase a buy-to-let property and would like an idea as to how the mortgage repayments could work out, across a range of different terms and interest rates, you can use our calculator as a guide:
Buy-to-Let Mortgage Calculator
Our buy-to-let mortgage calculator can show you how much your mortgage could cost you each month and overall. Simply enter the rental property value, deposit, anticipated monthly rent, interest rate, mortgage term and our calculator will do the rest.
Capital and repayment:
Loan to Value ratio (LTV):
Most lenders won't offer buy-to-let mortgages over a LTV of 80%.
Interest Cover Ratio (ICR):
Most lenders require rental income to be at least 125%-145% of the interest repayments for a buy-to-let mortgage.
Get started with a specialist buy-to-let broker to find out how much they could help you save on your monthly mortgage repayments.
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There are some drawbacks to owning a property through an SPV as opposed to individual ownership, so you should be sure you understand these before moving ahead.
The major ones are:
- Limited mortgage availability from major lenders (though a broker can help)
- Increased reporting and record-keeping requirements (primarily the obligation to file your company accounts each year with HMRC and Companies House)
- More complex taxation, which you might need expert help to navigate
Get matched with an SPV mortgage specialist
To find the best rate, you should speak to a buy-to-let broker who specialises in SPV mortgages. They will have access to every deal that’s available to you, even if it’s not advertised to the general public.
Using our free broker-matching service, you can connect with someone with the exact experience you need for a no-obligation chat. To get started, just call us on 0808 189 2301 or make an enquiry.
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