As landlords consider the best business structures, special-purpose vehicle mortgages have become more and more popular. Here, we go over how an SPV's company mortgage operates.
A special purpose vehicle, or SPV, is an umbrella term used in the mortgage industry to refer to a legal entity established specifically to buy and hold residential BTL. By using one, the investor's liability is reduced because the risk is not shared by the company, which has its own legal standing, assets, and liabilities.
A limited liability partnership( LLP), a public limited company( PLC), or another type of business may be used to set up an SPV.
We Cover The Following Topics
What Are The Advantages Of An SPV Mortgage?
It is possible to grow your buy-to-let portfolio quickly through an SPV limited company as there is no Income Tax due on the retained profit, giving you more capital to re-invest in further acquisitions or other business purposes.
Buy to Let lenders who provide mortgages through corporate vehicles typically favor SPVs over limited companies as they are simpler to understand and quicker to underwrite
You will have the ability to reduce your potential income tax liability by controlling how much income is taken out of the company. Profits are subject to corporation tax currently at 19%, rather than income tax, which can be as high as 46%
HMRC has phased out the ability to incur mortgage interest costs when operating as a sole trader. In an SPV, you can benefit from tax breaks on repairs and services costs in addition to mortgage interest.
A group of investors can easily divide the proceed from a property investment and ownership thanks to SPVs. In some circumstances, adding a new shareholder can help lower your capital gains tax or inheritance tax bill
Building a portfolio of several properties managed by one entity has the benefits of lower administrative and ongoing costs if managed effectively.
What Are The Drawbacks Of An SPV Mortgage?
Corporation tax is currently at 19%, however, is increasing in 2023. On 1 April 2023, the Corporation Tax main rate for non-ring fenced profits will be increased to 25% applying to profits over £250,000
When a company sells a property, there is no Capital Gains Tax allowance, whereas individuals benefit from a £12,300 personal allowance.
Some lenders may require a personal guarantee from the SPV limited company directors and will have liability for the debt if the mortgage is not fully repaid according to the terms.
Company mortgages tend to carry higher interest rates than residential mortgages. Over the last few years, however, the interest rates have been very similar between individual sole traders and companies. Using a specialist broker will give you access to competitive rates.
There are specific reporting obligations and filing deadlines that you must consistently follow as the owner of an SPV limited company. For instance, HMRC and Companies House are required by law to receive your annual accounting information.
You may be required to pay stamp duty land tax, legal fees, higher rate tax brackets, and possibly capital gains tax if you want to transfer existing properties into the company as the company is a separate entity.
Eligibility Rules for an SPV Limited Company Buy to Let Mortgage
As with any mortgage, each lender has a set of lending requirements before extending an offer.
Generally, the following will be included in the application process:
The structure of your business and your property portfolio
There are typically only four directors in place.
The ownership structure of the company
Your history and credit score
The kind of property you want to buy and its location
What is the LTV value of the mortgage loan you're applying for?
Personal Income- some lenders require a minimum personal income requirement in case of rental voids.
What Are The Deposit Requirements For An SPV Mortgage?
The maximum Loan to Value for Buy to Let Mortgages is usually 80% in today's market.
Depending on your individual circumstances, paying a larger deposit out of choice may give you access to a wider range of lenders and more competitive rates.
If your application presents added risk to lenders, e.g. you’re a first-time landlord or have a bad credit history, a higher deposit may be mandatory.
Which Lenders Offer Limited Company Mortgages?
Lenders who offer mortgages to limited companies include Paragon, Precise Mortgages, Aldermore and Shawbrook. 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. At the time of writing (February 2023), it is possible to secure a rate of around 5%
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
Can A Limited Company Get A Mortgage As An SPV On Any Property Type?
The type of property would you like to invest in will have a direct impact on the availability of mortgage lending as higher risks properties are more difficult to a 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 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.
Setting Up a Limited Company SPV
The process of setting up an SPV is relatively straightforward; it can be done online in a matter of minutes, at a minimal cost. Alternatively, you might want to ask a solicitor or accountant to do it on your behalf.
The process of setting up a limited company via the government website is as follows:
Check setting up a limited company is the right decision for you.
Choose a company name
Assign directors and a company secretary.
Decide on company shareholders or guarantors.
Identify people with significant control (PSC).
Prepare documents agreeing on how to run your company.
Check what records you'll need to keep.
Register your company.
When you register your limited company with Companies House, you will need to register an official address and choose a SIC (standard industrial classification of economic activities) code, that clearly identifies what your company does.
Company formations can be formed in minutes using rapid formations
Disclaimer
This article is intended to provide a general understanding of the topic. The contents should not be treated as advice.
Accelerated Finance Limited only considers applications for commercial or investment properties.
Accelerated Finance Limited is not regulated by the financial conduct authority and only provides unregulated loans via our network of lenders. Your property is at risk if you fail to make payments on a Mortgage Contract. Please note that Accelerated Finance Limited and its employees do not give financial advice or recommendations on any product.
