Can Landlords Benefit from SPV Mortgage Rates?

In this blog we will look at SPV’s, what they are, why you may buy a property in one, what SPV mortgage rates look like, what is required to secure an SPV buy to let mortgage as well as the SPV mortgage benefits for landlords.

What is an SPV?

An SPV is an acronym of Special Purpose Vehicle and in the context of property investment refers to a legal entity, often a limited company which is established for the sole purpose of owning and managing property, such as rental flats, houses, hmo property.

An SPV switches the obligations from the individual property buyer to a limited property company structure and allows property investors to buy, hold, operate and manage their property’s in a separate legal entity.

An SPV mortgage is a tailored financial arrangement that enables these companies to secure mortgage financing for their property investments.

Why buy a property through an SPV?

There are a number of benefits to buying property through an SPV rather than as private property investor.

What are the benefits of SPV?

Tax efficiency

Buying buy-to-lets in an SPV is very popular with property investors because of the potential tax benefits it offers, particularly for higher or additional-rate taxpayers. When a landlord takes out a buy-to-let mortgage in their own name, the property’s rental earnings and profit is added to the landlords overall personal income.  This may result in the landlord moving into the 40% tax bracket which would severely impact the profitability of buy-to-let flats and future buy-to-let properties.

However, if a landlord takes out a buy-to-let mortgage in an SPV name the landlord only pays corporation tax on the property’s rental earnings and profits, not personal income tax. Under the current government the maximum corporation tax a SPV mortgagee will pay is 25% which is 15% less than the higher personal income tax bracket. Highlighting how significant the tax benefits of an SPV buy-to-let mortgage can be when it is utilised to buy property.

Mortgage Interest relief

An SPV is able to offset all of the mortgage interest costs against the rental income of the property portfolio. This is different to personally owned properties whereby you cannot claim your mortgage interest as an expense.

Proportional ownership

The other advantage of buying property in a SPV is that property ownership can be shared. As part of a collective you can have multiple shareholders on the title deeds making it easier to manage proportions of ownership and the profit shares.  

Asset protection

If you have not been required to give personal guarantees the limited company structure of an SPV provides a degree of asset protection. In case of financial difficulties or legal issues related to the properties, the personal assets of the investor are generally shielded from the liabilities of the company.

Succession planning

Whilst capital gains tax is due on the eventual sale (disposal) of the property your loved ones will avoid stamp duty, land tax and potentially inheritance tax.  when the property SPV passes to them. By transferring the shares of the limited company that holds the property portfolio, you can set the cost of the shares at nil, avoiding stamp duty land tax liability. If 100% of the company’s shares are transferred before your passing, it eliminates the application of inheritance tax as well

What are the drawbacks of SPV mortgage?

Higher rates

You may need to pay slightly higher mortgage interest rates for a limited company buy-to-let mortgage and you may need a larger deposit compared to a standard buy-to-let mortgage.

Smaller pool of lenders

Not all lenders offer buy-to-let mortgage to limited companies and those that do tend to offer smaller product ranges.

Additional costs

There are additional costs of running a limited company, the new costs tend to arise when you set it up. You will have to prepare accounts, file in companies house, pay legal fees and if applicable pay for annual auditing.

Transfer charges

If you want to move properties you own into your SPV company you could be liable   for Stamp Duty Land Tax, legal fee, potential Capital Tax

SPV mortgage rates

All mortgage rates, including those for SPV mortgages can fluctuate based on broader market conditions, such as economic factors and central bank polices. These factors impact all rates available to borrows.

For SPV mortgages the criteria the lender requires differs from that of a personal application.  Also, the income requirements are different from other mortgages and they can vary from one lender to another.

• Deposit Requirements: SPV buy-to-let mortgages require higher deposits compared to an individual’s residential deal. Lenders typically ask for a deposit of 20% and 25% but some lenders require 30% or higher. Loan-to-value (LTV) ratios, which represent the loan amount as percentage of the property’s value, are usually capped at 80% or even less, with some high street lenders limiting it to 70% LTV.

• Personal Guarantees: In certain cases, lenders may demand personal guarantees from company directors, especially when the LTV exceeds 50%, as this provides an additional layer of security for the lender.

• Rental Income: Eligibility for SPV mortgages hinges on rental income, which typically need to cover at least 125% of the mortgage payment. This requirement ensures repayments and other expenses remain manageable.

• Personal Income Requirements: Besides rental income, SPV mortgages may consider a landlord’s separate personal income as part of the credit assessment. While there may not be a specific minimum income requirement in some cases in can be factor.

• Portfolio Size: Lenders have varying policies on the size of property portfolios. Certain lenders set maximum limits on the number of properties within a portfolio or the total value of those properties. Meanwhile others specialise in serving portfolio landlords, tailoring their offerings to accommodate large property portfolios.

• Age: Mortgage eligibility can vary with age. While some lenders may not specify a maximum age limit, particularly for experienced landlords with low LTV it generally becomes more limited as borrowers approach retirement. 

• Property Type: The type of property you want to purchase can affect eligibility. Some lenders only finance standard properties and they place restrictions to houses of multiple occupation (HMOs) and alternative letting arrangements.
• Credit History: The creditworthiness of the SPV and its directors can influence mortgage rates. Lenders often assess the financial stability and history of the SPV company and its owners to gauge risk.

Is an SPV mortgage right for you?

On close examination of recent published data which showed that as of September 2022 there were more than 300,000 buy-to-let companies registered with Companies House and that the average SPV holding was 3.3 mortgaged properties.  Therefore, it would appear that if your intention is to rent out one or two properties setting up an SPV is probably not the right option for you. However, if you intend to build up a property portfolio then it will probably prove beneficial to create an SPV in to capture the benefits mentioned above.

Do you want to sell your property portfolio?

If you have decided you want to sell a property portfolio and look elsewhere to invest here is why you should consider selling to Gaffsy.

Gaffsy is a genuine cash house buyer, a member of the National Association of Property Buyers and the Property Ombudsman; with years of experience buying property portfolios know you will be in safe hands.  Here is why you should sell your flat  to a cash house buyer:

• Save Time: Gaffsy can provide an offer for your entire portfolio, or the selection of properties you’d like to sell. As a self-funded cash buyer there is no waiting ground, our ability to buy your portfolio for cash means we are fast and flexible working at your speed.

• No Fees: Gaffsy does not charge any commissions or valuation fees and evens pays legal cost, significant increasing your return on the property. This can be especially advantageous when dealing with a proprety portfolio or larger number of properties.

• No Obligation Cash Offer: Gaffsy provides a no-obligation free cash offer for your specific properties or entire portfolio. There is never any pressure or commitment to accept the offer. We will wait for your green light before proceeding to an in-person valuation.

• Streamlined Process: Gaffsy does not only guarantee you the sale of your property portfolio we also provide a straightforward and streamlined process. No matter the location, size, condition and tenancy status, we buy any property.

If you want to sell a property portfolio fast, contact us today.