SPV mortgages (A 3 point guide)
In this brief blog, we will cover SPV mortgages, what they are and what the benefits of using SPV mortgages may be.
What are SPV mortgages?
SPV mortgages aka special purpose vehicle mortgages are mortgages set up using limited companies to control and mortgage a host of buy to let properties in order to be tax efficient.
SPV mortgages are essentially a limited company with restricted trading.
What is an SPV?
An SPV is a Uk special purpose vehicle company established by private individuals for the sole purpose of managing buy to let mortgaged properties. This means the purchase, remortgage and letting of buy to let properties.
When creating your SPV you must ensure you register it with the correct standard industry classification codes as the mortgage lender may check for this.
The standard industry classification codes you should register your SPV are:
- 68100 Buying and selling of own real estate
- 68209 Other letting and operating of own or leased real estate
- 68320 Management of real estate on a fee or contract basis
You don’t necessarily need an SPV to get a buy to let mortgage through a company. You can use a company that isn’t an SPV but you will have a limited choice of mortgage lenders.
Remember to open a new business account for your SPV if not you may find that most buy to let mortgage lenders will not lend to you.
SPVs can appear very complicated and you may want to seek independent financial from a mortgage broker and legal advice when setting one up.
When applying for an SPV mortgage you can have as much as 4 shareholders or directors.
Directors are always considered in the mortgage lenders underwriting criteria but shareholders who own less than 24% may not be considered by some buy to let mortgage lenders.
This could be a good option if you want someone to contribute money towards a mortgage deposit but don’t necessarily want them to be a party to the mortgage.
Is an SPV mortgage the right option?
SPV mortgages will allow you to retain the net profit gained from your rental income and use this to fund the mortgage deposits of other properties
SPV mortgages will allow you to get a better mortgage interest tax relief than you would usually be able to.
SPV mortgages will allow you to use a £2,000 tax-free dividend through PAYE with no further tax liability.
SPV mortgages will allow you to add your family members to the list of shareholders and utilize their dividend allowance as a means of extracting income out of the company tax-free.
SPV mortgages also allow buy to let mortgage lenders to offer you much better rental coverage ratios. In some cases, this could be up to 30% less.
This means you may be able to offer competitive rents to your tenants in order to close a vacancy sooner.
SPV mortgages will allow you to sell your main resident to your SPV as a buy to let and raise capital which you can use as a mortgage deposit to purchase another buy to let property. Doing this will mean you pay no capital gains on the sale, your property will also be held in a tax-efficient structure.
SPV mortgages allow you to loan your mortgage deposit to the SPV as a directors loan. This means you can offset any rental profits with the cost of the director’s loan to the SPV and therefore reduce your tax liability.
SPV mortgages can be useful if you have multiple borrowers who want to use an SPV to divide ownership of an investment property through their shareholding of the SPV company.
What mortgage lenders offer SPV mortgages.
The list of mortgage lenders offering SPV mortgages and their loan to value rates will change from time to time so the list below should not be taken as a definite list and you can ask your buy to let mortgage broker for a more up to date list.
- Shawbrook / Maximum advance 75% loan to value / Trading & SPV
- Kent Reliance / Maximum advance 85% loan to value
- Metro Bank / 75% loan to value / SPV
- Precise / 80% loan to value / SPV
- National Counties / 65% loan to value / SPV
- Vida Homeloans / 80% loan to value Trading & SPV
- Axis Bank / 75% loan to value / SPV
- Norwich & Peterborough/Family Building Society / 75% loan to value / SPV
- Cambridge & Counties / Trading & SPV
- Foundation / 80% loan to value / SPV
- Paragon / Maximum advance 75% loan to value
- Aldermore / Maximum advance 80% loan to value / Trading & SPV
- Landbay / 75% loan to value / SPV
- The Mortgage Works – TMW / 80% loan to value / SPV
- State Bank of India / 80% loan to value / SPV
- Fleet Mortgages / Maximum advance 75%% loan to value
- Interbay / Maximum advance 85% loan to value / Trading & SPV
What mortgage deposit do you need for an SPV mortgage?
You will still require a 25% mortgage deposit for an SPV mortgage as you will for most buy to let mortgages.
Your mortgage deposit, when funded through an SPV, will be in the form of a directors loan.
Your mortgage deposit can either be:
Equity when the property is gifted from parent to sibling (no deposit required as equity treated as a full mortgage deposit)
You can use existing personal savings
Gifted mortgage deposit from a family or friends but you may face a limited choice of mortgage lenders
Savings/profit accrued from other existing limited companies or SPVs
Remortgage on existing personal Buy to let property
Remortgage of existing residential property. (offset mortgages are tax-efficient)
Inter-Company loan (from a trading company to SPV)
SPV mortgage rates
The rates on the SPV mortgage market have not been competitive for a while as the SPV mortgage market is still defined as a specialist part of the buy to let mortgage market.
The mortgage arrangement fees of SPV mortgages are also usually higher than those on personal buy to let mortgages as well as being linked to the mortgage as a percentile of the mortgage.
Can you remortgage your current property into your SPV?
No, doing this will be treated as a property transfer and you will be liable for the stamp duty.
What are the mortgage eligibility requirement for an SPV mortgage?
Different SPV mortgage lenders will have different mortgage requirements and so there isn’t anyone set of rules for you to get an SPV mortgage. If you want to get an SPV mortgage you may want to speak to a buy to let mortgage broker who may be able to assist you further.
Below are the typical factors you may want to consider when thinking about your eligibility for an SPV mortgage.
Your property type (non-standard construction properties may be harder to get SPV mortgages for)
Your disposable income
Your credit score and history (bad credit mortgage borrowers may be harder to get an SPV mortgage for)
Speak to an SPV mortgage broker
A good SPV mortgage broker may be able to advise you on the mortgage that may be able to offer you an SPV mortgage.
Use a mortgage broker for your mortgage in principle
You may want to use an independent mortgage broker to help you get a mortgage on your new home.
Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases.
This could be over 11,000 mortgage products. This may have some advantages rather than going directly to a mortgage lender.
A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you based on your mortgage affordability.
After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle.
This will allow you to shop for your home as more estate agents and sellers may take you seriously and it will also give you confidence that your mortgage is indeed a possibility before you make a full mortgage application.
Once you have found a home you want to buy and are satisfied with the mortgage offer for your mortgage then the mortgage broker will then look to get you a mortgage offer.
This will come with a key facts illustration document that details the features of your mortgage including how much you will pay per month.
It will also contain information on if there are any limits such as early repayment fees, or annual overpayment limits.
If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer.
Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it.
They will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer, and set a completion date with the seller or their conveyancer.
This will then bring an end to the conveyancing process, at which point you will receive the keys to the house and move in.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.