A Special Purpose Vehicle, or SPV, is a tax-efficient option for landlords, whether they own one buy to let property or a wider portfolio.
SPV is a term used throughout the mortgage industry and means a limited company incorporated specifically to buy and let out rental homes – it has trading restrictions, so it isn’t suitable for any other type of business.
Today we look at how SPV mortgages work, the eligibility criteria, and decipher some of the terminologies you’d expect to encounter during the application process.
How Do I Set Up a Limited Company Buy to Let Business?
Incorporation is straightforward, and you don’t necessarily need any expert support to create your own SPV.
The rules mean your company needs to pick a code, which could be one of these three:
- 68100 – companies that buy and sell properties.
- 68209 – letting or managing rental properties.
- 68320 – managing properties based on contracts or fees.
You can register directly with Companies House, pay an accountant to do this for you, or work with a company offering incorporation services.
Existing limited companies can also purchase buy to let residences, but the lender choice is more limited than for an SPV.
How Can I Finance a Mortgage Deposit for a Limited Company Buy to Let?
There are several ways to pay for the down payment, and this can originate from:
- Personal savings.
- Remortgages – of either a privately owned buy to let or residential property.
- Loans between trading companies or finances from a holding company.
- Savings gifted by a family member (although not every lender will accept this).
- Equity from a property gifted from a parent to a sibling.
You usually won’t need to pay a transactional deposit with that final option because the equity will act instead of a down payment.
What Rental Coverage Do Limited Company Buy to Let Mortgage Lenders Expect?
Buy to let mortgage lenders always want to check the anticipated rental income on a property before they can offer to lend.
Usually, you’ll need to demonstrate forecast earnings of at least 125% of the monthly mortgage interest payment.
The benefit of an SPV mortgage is that you’ll normally be able to borrow more against a property with the same rental income – because there is less risk, and you’ll be paying less Corporation Tax than a private landlord would pay Income Tax.
As a rough comparison, limited company buy to let mortgages might be:
- At fixed or discounted rates for less than five years, with 125% rental coverage and a 5.5% interest charged.
- On a comparable basis, but fixed for five years or more, at the same 125% rental coverage but with a 2.95% interest cost.
For an individual landlord applying for a personal buy to let, the averages are:
- 5% interest, with required rental coverage of 145% on a mortgage at a fixed or discounted rate for fewer than five years.
- 5% interest on a fixed-rate mortgage for five years or more, with 145% rental coverage required.
How Many Directors Can I Have to Apply for a Limited Company Buy to Let Mortgage?
Lenders normally accept up to four applicants per application, although the more directors or shareholders you have, the less choice you have between lenders.
What Buy to Let Products Are Available to Limited Companies?
Given the changes to tax relief for landlords over the last few years, setting up an SPV is increasingly attractive.
That means that the buy to let mortgage market for limited companies has matured significantly, and you can apply for a wide range of products.
- Short let mortgages ideal for temporary accommodation, holiday homes and Airbnb investments.
- Refurbishment buy to lets, bringing a property into a habitable condition and often remortgaging once work is complete.
- Inter-family property sales, when a home is sold or gifted to a family member to be used as a rental asset, or an existing rental changes hands.
- Mortgages for multi-block units with several rental residents and HMOs (houses in multiple occupation) such as a house share or student property.
- First-time landlord or first-time buyer mortgages suited to the owners or directors of a limited company.
You can also apply for day one remortgages, green mortgages, and SPV mortgages without early settlement penalties.
What Do I Need to Do Before I Apply for an SPV Mortgage?
Once you’ve incorporated your company, you’ll also need to open a current business account in the organisation’s name.
A lender can’t offer an SPV mortgage until you have a verified registration number and a valid company bank account that matches the name.
You’ll also need to think about working with a solicitor, accountant or broker since commercial buy to let lending is a specialist topic.
Professional advice will ensure you make clear decisions about which product to apply for and which lender is best suited to your borrowing requirements.