SPV Mortgages For Buy-To-Let

Discover the pros and cons for directors of investing in BTL property using a Special Purpose Vehicle limited company

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Graham Cox - Founder & Cemap Mortgage Advisor | SelfEmployedMortgageHub.com
Graham Cox
Director & CeMAP Mortgage Advisor

Special purpose vehicle limited companies have become increasingly popular with Buy to Let property investors in recent years.

And with good reason, as SPVs provide landlords with many advantages, including some financial benefits.

In this guide to SPV mortgages, you'll learn what an SPV company is, why you should consider setting one up, and how a Special Purpose Vehicle company can help you build your BTL property portfolio.

What is an SPV limited company?

As the name implies, a Special Purpose Vehicle (SPV) company is a limited company (or LLP) structured and used for a single, specific purpose.

Just like a regular limited company, an SPV is its own legal entity, separate from the shareholders and directors who own and manage it.

SPV's have many uses. The most common is for residential property portfolio investment and management, particularly as the tax regime for landlords has become more punitive in recent years.

Though it might sound complicated, a good way of thinking of an SPV is as a standard limited company with a clearly defined trading role. In this case, the buying, selling and letting out of rental property.

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How are SPV companies used for property investing?

The fundamentals of using an SPV company for property investing are straightforward:

  • The SPV company purchases and owns the property
  • The SPV receives the rental income and pays corporation tax on its profits
  • Mortgages are taken out by the SPV company, not the directors
  • Shareholders, (usually the directors) own the SPV
  • Directors run and manage the SPV, just like they would any other Limited company.

What are the advantages of using a SPV company for BTL property investment?

There are several advantages to buying residential investment property via an SPV. Some of the key benefits include:

Tax benefits

SPVs tend to be more tax-efficient for higher-rate taxpayers. With an SPV, buy-to-let mortgage interest payments and other finance costs can be deducted as a business expense, significantly reducing your corporation tax bill.

By contrast, private landlords are no longer able to deduct mortgage interest against rental income.

Instead, they must first declare their full rental income, before receiving a tax credit worth just 20% of their annual mortgage interest payments.

This can mean a significantly increased tax bill for higher-rate taxpayers.

Worse still, because the rental income (before mortgage interest) has to be declared on your tax return, it can push you into a higher tax bracket.

Lower interest coverage ratio requirements

Another advantage is that the Interest Coverage Ratio (ICR) required on a rental property tends to be less onerous if you invest via an SPV.

That's because lenders assess that you'll pay less tax because the rent is received into a Ltd company.

Many BTL mortgage providers assess rental income for SPVs on an ICR of 125%. In other words, the gross rental income needs to exceed the mortgage interest payments at the stress-test rate by 125%.  

By comparison, the ICR for higher tax rate private landlords can often be as high as 145%.

Grow your portfolio more quickly

There's scope to build your investment property portfolio faster by retaining profits in the company for future investment. And owning multiple properties can help mitigate the risks of void periods of course.

Keeping profits in your SPV also allows you to control your personal tax liability.

Lenders prefer BTL investment via SPVs

As a dedicated property investment company, Buy to Let purchases through SPVs tend to be easier for mortgage lenders to assess and underwrite.

For that reason, banks, building societies, and other providers usually prefer offering BTL finance to SPVs over regular limited companies that might have a trading history in an unrelated industry.

Limited liability (in theory)

A special purpose vehicle company, in theory, protects your personal liability, as the downside is restricted to your investment in the company.

If the worst were to happen, your other assets held outside the company (such as your family home) could be protected. However, the reality is somewhat different, as explained below.

Disadvantages Of An SPV

Whilst SPVs offer several advantages for BTL landlords, there are some potential drawbacks as well. Here are some things to consider before setting up a SPV company:

A personal guarantee may still be required

Should your investment not go according to plan, using an SPV offers the ability to ring-fence your liability. However, in most cases, the lender will usually require personal guarantees from the director(s).

From the lender's point of view it's completely understandable, given that without a guarantee, they would have no recourse if the SPV missed payments.

Even more so, when lenders are often asked to provide property loans to brand new SPVs with no trading history.

If the loan to value is very low, at around 30% or less, then the lender may be happy to provide funding without a guarantee. But it's always prudent to assume you will be asked to provide one.

Company Costs

You'll also have all the setup and ongoing accounting and other costs and obligations associated with running a limited company.

Higher Mortgage Rates

Compared to a standard residential BTL mortgage, limited company buy-to-let mortgage rates tend to be slightly more expensive.

Deciding if An SPV Limited Company Is Right For You

As you can see, there are pros and cons to SPV mortgages and you should consult with your accountant or a specialist property tax advisor to determine if an SPV is a good choice for your particular circumstances, goals, and preferences.

Discover your best deal

"Brilliant from start to finish. Graham managed to find a main high street lender who offered a brilliant rate. Would highly recommend."

Tracy Boyle - Google Business Review
At a time that suits you.

How do I set up a SPV?

You can set up an SPV limited company in one of two ways:

  • Set up an SPV Limited Company through the Companies House website. The cost is just £12.
  • The more expensive but less time-consuming option is to ask your accountant or solicitor to set it up for you.

Regardless of which route you take, it's vital you choose the correct SIC code for your fledgling company.

What's a SIC code?

A SIC code stands for Standard Industrial Classification of Economic Activities. It's used to categorise the business activity of a company.

The SIC codes for property businesses are in Section L of the companies house website, which you should check before setting up your company. Many lenders won't lend to a SPV if the SIC code associated with the company is not one of these four listed below:

  • 68100 Buying and selling of own real estate
  • 68201 Renting and operating of Housing Association real estate
  • 68209 Other letting and operating of own or leased real estate
  • 68320 Management of real estate on a fee or contract basis

Getting SPV mortgage advice

At SEMH, we can secure you the best possible BTL mortgage deal regardless of whether you are purchasing through an SPV, or as a sole trader.

We've access to a huge range of mainstream and specialist BTL lenders, and can often source a deal and Decision in Principle on the same day.

Get in touch today on 0117 205 0655 to discuss your requirements and we'll be happy to help.

Alternatively, click here to get started and we'll be in touch within a few minutes during our office hours of 9am - 5pm, Monday - Friday.

Graham Cox

About the author

Graham Cox is the founder of Self Employed Mortgage Hub, the trading name of Hub FS Limited. Based just north of Bristol, SEMH is an independent, whole of market broker and a true specialist in self employed mortgages, helping business owners across the UK get great mortgage and protection deals.

Graham's market commentary and analyis is regularly quoted in the national press and media, including The Guardian, Telegraph, Financial Times, and BBC Bristol.