Rather than buying an investment property in their own name, many investors are now choosing to do this through a limited company, or SPV.
These are not just for the ultra-experienced landlords and developers. An increasing number of first-time and smaller-scale investors are also choosing to use an SPV limited company to purchase their properties.
Let’s take a look at how they work and who they might be suitable for.
What is an SPV?
A Special Purpose Vehicle (SPV) is a company that is set up for a specific purpose. In the case of buy to let, this would be to purchase and manage investment property.
An SPV can own any number of properties and can provide a range of benefits depending on your circumstances. They are commonly used by developers to finance large-scale projects, but can also be used by smaller investors to purchase just one or two properties.
A Special Purpose Vehicle is normally set up as a registered limited company, that has its own shareholders and directors. In connection to property investment it is the limited company that will apply for the mortgage and own the property.
You can read more in our Guide to SPV Limited Companies.
How can it help property investors?
Buying a property through a limited company may offer attractive financial benefits to some landlords, mainly tax related – although this will depend on your individual circumstances.
For example, a higher rate taxpayer who has a portfolio of properties may find it more tax-efficient to own them within a limited company.
Experienced landlords who have a mixed portfolio of properties (commercial, residential, HMO and Multi-Unit Freehold Block MUFB) may also find it beneficial to move their properties into a company structure. This can help to protect your personal assets in the event that the company hits financial difficulties and also helps to streamline the paperwork side.
how do Portfolio Mortgages work?
A portfolio mortgage could be worth considering if you own four or more investment properties. By placing all of your properties under one mortgage facility you will streamline your finances and admin time. Read on to discover how portfolio mortgages work and how they can benefit landlords.
Why are SPV’s so popular?
Developers and investors have been using limited companies and SPV’s for years. But most buy to let investors have preferred to own the properties themselves and this allowed a greater degree of mortgage choice for both purchase and refinance.
But this is slowly changing.
The government introduced ‘Section 24’ restrictions on the amount of mortgage interest that could be claimed against rental income. The amount of the allowance has gradually reduced in recent years and is now zero.
As a result, it has made some highly geared buy to let investments unviable or loss-making.
However, limited companies are still able to claim full tax relief on all of the mortgage interest they pay.
Since the changes to interest and finance costs were announced, the SPV route has become financially more appealing, even for smaller property investors.
SPV Mortgages: What are the main benefits?
There are a number of reasons why an SPV mortgage might be the right option for you.
These include:
- The ability to claim full tax relief on mortgage interest payments
- Streamlined portfolio management – all properties owned by the company appear on one balance sheet
- Bypass portfolio landlord restrictions, and avoid extra lender stress tests
- Potentially lower overall tax liability – although this will depend on your individual circumstances
- Increased borrowing capacity – as companies can often borrow more than individuals
- Asset protection – as the company is a separate legal entity, your personal assets are ring-fenced in the event of any financial difficulties
It’s fair to say that tax, and tax savings, is the main driver behind the increased popularity of limited company mortgages. If you are a higher rate taxpayer, then you can potentially save a lot of money by using an SPV to purchase your property.
How do you set up a limited company?
There are a few things you need to do in order to set up a limited company and it’s not quite as complicated as you might think.
These include:
- Choose a company name
- Register it with Companies House
- Appoint directors
- Create share capital
- Get a company bank account
Once you have done all of this, you will then be able to apply for a mortgage in the company name.
CONTACT A MORTGAGE BROKER
If you are ready to take the next step then we can put you in touch with a fully qualified independent mortgage broker.
How does a limited company apply for a mortgage?
If you’re buying a property through a limited company, you may discover that you have less choice when it comes to lenders than for a typical buy-to-let mortgage.
But there are still plenty of options out there, and many lenders are now starting to offer more competitive rates for limited company mortgages as the sector matures.
The application process is also generally the same as for a standard buy to let mortgage. You will need to provide evidence of your income, the deposit amount and the loan amount you require.
It is advisable to seek help from an experienced SPV mortgage broker who will be able to give you access to many specialist SPV lenders. Your broker can also ensure that you are eligible for a mortgage before you apply.
Eligibility
The lender will check that the company has been correctly registered and has the right SIC Codes. They will also need to verify the shareholders and directors.
Criteria
Newly formed companies can apply for a mortgage straight away. However, the directors will generally need to have earned income of £20-25,000pa.
Personal Guarantees
The limited liability status of an SPV does not apply to the mortgage. The directors will need to provide a personal guarantee (PG) to the lender.
Mortgages for new companies
Many of our clients want to invest soon after they have set up an SPV limited company.
This is perfectly OK.
SPV companies are effectively shells or wrappers for other assets. When applying for an SPV mortgage the lender will be assessing the directors and shareholders of the business, so a newly formed Co is acceptable. In most cases, the lender will require that the director(s) of the SPV provide a personal guarantee. A personal guarantee means that, should the lender repossesses a property, and there is still money outstanding, the person providing the personal guarantee will be liable for the remaining balance and costs.
There still needs to be an affordability check, so the gross monthly rent must cover the mortgage interest by 125%.
Deposits
The minimum deposit for a buy-to-let mortgage is usually 25% of the property’s value but there are some lenders willing to accept 15%.
The source of the mortgage deposit is quite flexible with BTL. It could come from retained profits, sale of another SPV property, remortgage of another SPV property, funds from another SPV where the companies have common ownership.
Please discuss this with your broker at the earliest opportunity as it may affect the number of products you are eligible for.
Limited Company Buy to Let Mortgages
This is a very established market and there are a good selection of lenders who are happy dealing with SPVs.
You’ll need a specialist mortgage broker to apply for a mortgage for buy-to-let through a limited company and many lenders only deal with registered brokers for these types of loans.
Our brokers understand what criteria you need to meet for your BTL mortgage and they have access to the right lenders.
Limited Company Holiday Let Mortgages
While the market for holiday let mortgages is well established, it is much smaller than buy to let and this corresponds to the number of active lenders.
We recommend that you always use a very experienced SPV mortgage broker for holiday lets. The lending criteria and assessment is not the same as BTL.
Plus many of the lenders are different and will only deal with brokers for this category of borrowing.
HOW CAN WE HELP WITH LIMITED COMPANY MORTGAGES?
Respect Mortgages works with one of the most highly experienced and respected brokers in the UK. They have been helping clients for more than 45 years and are experts at all situations involving limited companies and SPVs.
Fully FCA regulated, they have more expertise across more lending solutions than any other broker and have specialist teams in place to work with clients through every stage of their journey.
FAQ
Frequently Asked Questions
Does a limited company pay stamp duty?
Yes. There are no savings for stamp duty. You can find more information here.
How many mortgages can an SPV have?
There’s no actual limit. It will depend on the mortgage lenders criteria.
Does an SPV need a bank account?
Yes. The SPV will need a business current account in it’s own name.
How do you set up a limited company?
It is relatively easy to do this. We have a full explanation in our SPV Guide.
Will I need a mortgage adviser?
Yes. You will need an adviser who is experienced with arranging mortgages for limited companies.
Who owns the property?
The SPV limited company will own the property and will apply for the mortgage. It also receives any rental income and pays the mortgage.
