SPV mortgages

SPV mortgage criteria and who they suit

Investors looking at an SPV mortgage usually ask two things first: what the deposit requirements are, and how to apply. Lenders assess an SPV mortgage on the rental income the property produces, the interest cover ratio that rent gives against their stress rate, and the strength of the directors behind the special purpose vehicle. Deposit requirements start at around 20 to 25 percent, and the exact figure depends on the rent. Most lenders want the SPV registered at Companies House with property SIC codes, personal guarantees from the directors, and a clear picture of any background portfolio held personally or in other companies. First time landlords are considered by some specialist lenders while others want a track record, so eligibility is about matching the borrower and the property to the right criteria. Portfolio landlords with four or more mortgaged properties are stress tested across the whole portfolio under the PRA rules, so the business plan, the cash flow and the EPC ratings all matter. A common question is the difference between an SPV and an ordinary Ltd company: an SPV is simply a limited company restricted to holding property, and lenders prefer it because the accounts carry no unrelated trading risk. We package the company documents, the rental evidence and the portfolio schedule so the underwriting runs cleanly. All criteria are indicative, vary by lender, borrower and property, and are not an offer of finance.

How much can an SPV borrow?

A special purpose vehicle can borrow against the value of the property and the rent it produces, indicatively up to 75 to 80 percent loan to value, with the exact loan set by the interest cover ratio the rental income supports against the lender's stress rate. A higher rent relative to the loan gives more headroom, which is why higher yielding property and lower LTV cases pass the stress test more easily and price more keenly. Borrowing scales with rental income across the portfolio rather than a salary multiple, so an SPV can support far more lending than a single individual on the same stock. Where the rent is tight, a lender may reduce the loan or accept top slicing from the directors' other income to bridge the gap. On a remortgage, the same maths releases equity: we size the new loan against the rent and the current value, freeing capital raising for the next deposit. We model the interest cover on our limited company mortgage calculator before approaching lenders. The figures are illustrative, vary by lender and property, and are not an offer of finance.

SPV mortgage rates, fees and stamp duty

SPV mortgage rates usually sit a little above equivalent personal buy-to-let lending, reflecting the underwriting of the company and the personal guarantees, though the gap has narrowed as SPV lending has become mainstream. As an indication, two and five year fixed SPV mortgage rates currently range from around 4.5 percent to 6.5 percent depending on LTV, the interest cover ratio and the product fee, and larger portfolio deals are priced individually. Expect a lender product fee, a valuation fee, and legal costs for both the lender and the company, alongside the rate, plus any early repayment charge if you redeem inside the fixed period. On the tax side, an SPV pays corporation tax on rental profit and can offset mortgage interest in full, unlike an individual landlord whose mortgage interest relief is restricted by section 24, which is one reason property investment runs through a company. Where an SPV needs to move quickly on a purchase or an auction lot, bridging loans can fund the deal and then exit onto a term SPV mortgage once the property is let, a bridge to let route we arrange alongside the main facility. SPVs do pay stamp duty, including the higher rate surcharge on additional property, and moving existing property into an SPV is a purchase that can trigger both stamp duty and capital gains tax. Rates and fees are indicative and not an offer of finance, and tax is a matter for your adviser.

SPV versus a standard limited company

The difference between an SPV and an ordinary Ltd company is what the company is allowed to do. A special purpose vehicle is a limited company set up purely to hold and let property, with property SIC codes and no unrelated trading activity, while a standard trading company does something else as well and merely happens to own property. Specialist lenders strongly prefer the SPV because its accounts are clean and its liability is ring fenced, which usually means more lenders, better rates and simpler underwriting. Beyond financing, investors use an SPV for limited liability, for the tax efficiency of corporation tax against restricted personal relief, and for succession and estate planning, since shares in a company can be passed on more flexibly than individual properties. For property investment at scale, an SPV can also hold multiple properties in one place, or a group structure can spread a property portfolio across several SPVs so each block of lending stands on its own. Succession is often the quiet driver: passing company shares to the next generation is simpler than transferring multiple properties one by one. None of that is a substitute for advice: whether to hold in an SPV, and whether to move an existing portfolio into one, turns on your income, your plans and the stamp duty and capital gains tax on any transfer. We do not give tax advice. We arrange the SPV mortgage once the structure is decided and work alongside your accountant. Where a case would be a regulated mortgage contract or a consumer buy-to-let, we refer it to an authorised firm.