A Commercial Mortgage for an SPV: an accountants POV
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Many of your clients may be setting up limited companies as Special Purpose Vehicles or SPVs – to avoid punitive taxation on BTL property investments.
If you advise clients to take this route, you may need to help them find suitable funding.
As an accountant, one of the challenges you face is to find the most cost-effective - and tax-efficient - ways for your clients to pursue their business plans.
Buy to Let remains a vital part of the housing market. The government has made some changes to tax relating to BTL investments, intended to make them less attractive to individuals. Many accountants have seen ways to mitigate these measures and are advising Buy to Let borrowers to set up limited companies as Special Purpose Vehicles or SPVs.
It means greater tax efficiency – and with help from the mortgage experts on the Rangewell team, it can mean lower rates too.
At Rangewell, we were recently contacted by an accountant whose clients were a husband and wife partnership who ran a number of small corner shops in East London, and had seen an investment property close to one of their retail outlets.
The property had been tenanted for several years, and which they believed could be let to tenants on a room-by-room basis.
They had experience as landlords, with tenants in the flats above their shops, but their accountant pointed out that, although their plans looked sound, there could be some challenges.
One challenge was the fact that the property would be an HMO. A rental property is classed as HMO, or House in Multiple Occupation, when it is let to unrelated tenants. The usual model is to provide individual bedrooms served by common living areas, including kitchens and bathrooms.
Most Buy to Let Mortgages will include a clause specifically excluding HMOs. Lenders have historically seen this type of arrangement as presenting a higher risk than a property let to a single tenant.
A special mortgage will be required for an HMO. Not all lenders will provide it, and many of those that will consider lending on an HMO will only do so for borrowers who have experience in the sector.
The accountant was also aware that there was an additional problem with the couple’s take-home pay. Despite their successful shops, their actual take-home pay was below the threshold for many Buy to Let deals.
The accountant came to Rangewell for help.
How we helped find a funding solution
We looked at the figures with the accountant and, at his suggestion, that he helped his clients set up a Special Purpose Vehicle (SPV). These limited company arrangements can be used to isolate the risk of a particular project from other business activities.
The accountant was able to set up an SPV online in a few minutes.
"SPVs are ideal to hold the property and the income and expenditure of Buy to Let property. Lenders offering mortgages to corporate vehicles may prefer SPVs to trading limited companies because they are easier to underwrite - there is no risk from other business activities."
They would overcome any affordability issues stemming from the couple's apparently low income from their other businesses. As a purely Commercial Loan to a limited company, the only factor taken into consideration by the lender would be the profitability of the property itself.
But there was another advantage. An SPV was an important plus which would open the door to many more deals, some of which might include particularly attractive rates.
We looked at various lenders and at their assessment criteria, which can vary between lenders. Some may take the personal financial history of the company directors into account, others will base decisions purely on the SPV structure. Lenders usually require the directors to guarantee the debt personally. The low income of the couple was a problem with most lenders but, with a successful business plan showing more than adequate and income from rentals, one lender was prepared to offer a very attractive deal.
We were able to source a 75% loan at 4.39% fixed for two years with a 3.00 % fee, on a 20-year interest-only deal from a specialist property lender.
Even after costs had been dealt with this meant that the property offered a very worthwhile cash profit for the couple – which the accountant was happy to recommend.
So if you're ready to find out more about finance for your clients' SPV plans, simply call us at Rangewell on 020 3637 4150 - or email firstname.lastname@example.org. Our service is always free for accountants and their clients.