SPV Buy-to-Let Mortgages: Explained Part 1

Introduction

Host: Hello and welcome back to another episode of Let’s Talk Mortgages. In this episode, we’ll be decoding the topic of SPV. Now, what is an SPV? I honestly don’t know, which is why I have the Mortgage Wizard — Ifthikar Muhammad, who is a mortgage adviser and accountant with over 10 years of experience.

What is an SPV?

Host: Ifthikar, how are you doing today?

Ifthikar: I’m very well, thank you. How are you doing?

Host: Doing good, thank you.

So, talking about SPV — I know that SPV stands for Special Purpose Vehicle. The first impression I get of the term “Special Purpose Vehicle” is like having a car for a specific purpose, such as a racing car. Is that what it is?

Ifthikar: Not exactly. In this context, a Special Purpose Vehicle means you set up a company specifically to buy a property or properties. So, it’s a “special purpose” company created to buy property.

Why Do I Need an SPV?

Host: Why do I need an SPV? I can buy a property under my own name, so what’s the reason for setting up an SPV?

Ifthikar: That’s a valid question. SPVs became popular about 4–5 years ago after changes in tax laws.

If you buy a property in your individual name, you can’t deduct the mortgage interest as a cost anymore. For example, if your rental income is £10,000 and your interest cost is £5,000 — earlier, you’d be taxed on £5,000 (profit). Now, you’re taxed on £10,000 (full income).

If you’re a higher-rate taxpayer, it’s worse because your rental income gets added to your total income. So, someone earning £42,000 with £10,000 in rent would now be taxed as if they earned £52,000 — pushing them into a higher tax bracket.

That’s why high-rate taxpayers often prefer the SPV route. But if someone is a basic-rate taxpayer, buying under their own name might still work better.

Is It Hard to Set Up an SPV Company?

Host: How hard or easy is it to set up a limited company?

Ifthikar: It’s not difficult. You can set up a company on Companies House within 24 hours.

However, it gets complicated because each person’s circumstances are different. You might want to structure the company in a way that works for you — so, it’s wise to get professional advice, especially tax advice, before setting it up.

Can I Buy a Residential Property Under an SPV?

Host: Once I set up an SPV, can I buy a house for residential purposes, or is it only for buy-to-let?

Ifthikar: The whole idea of an SPV is for investment purposes.

If you buy without a mortgage: You can technically live in it, but since it’s owned by the company, HMRC says you must pay market rent to the company — which will then be taxed. That doesn’t make much sense financially.

If you buy with a mortgage: You need permission from the lender. Usually, lenders don’t allow this because it’s meant for investment purposes, not residential living.

So, practically speaking, you can’t use an SPV property as your main home.

How Is Tax Different Under an SPV?

Host: From what you said, under an individual’s name, income is taxed under regular tax bands — 20%, 40%, 45%. But under an SPV, rental income is taxed differently. Is that right?

Ifthikar: Yes. With an SPV, you pay corporation tax instead of personal income tax.

If you withdraw dividends, you pay dividend tax depending on whether you’re a basic or higher-rate taxpayer. But most landlords retain profits in the company and only withdraw tax-free dividend allowances — so they just pay corporation tax.

Under personal ownership, the tax adds to your income. So, if your rental profit pushes you into a higher bracket, you’ll be taxed more — plus, you can’t deduct mortgage interest anymore.

Can I Use My Savings to Start an SPV?

Host: Let’s say I have savings in my bank account. Can I use that to start a company or buy a property through an SPV?

Ifthikar: Yes, you can. You can use your personal money as share capital or a director’s loan to the company.

But again, there are restrictions on how much you can withdraw later, so it’s best to get both tax and mortgage advice before doing so.

At WS (our firm), we provide both accountancy and mortgage advice — a one-stop shop.

Are There Lenders Offering SPV Mortgages?

Host: Are there lenders offering SPV mortgages?

Ifthikar: Yes, there are. Lenders for SPVs are more limited — around 15–20 lenders — compared to residential mortgages.

Some lenders prefer straightforward company structures, while others avoid complex setups. If your situation involves multiple entities or trading companies investing in SPVs, you definitely need professional advice.

How Is SPV Lending Criteria Different?

Host: Are SPV mortgage criteria similar to regular buy-to-let mortgages?

Ifthikar: In many ways, yes. Each bank has its own criteria, but SPVs are technically commercial mortgages, so there’s more flexibility.

Most are offered by boutique banks, with a few big ones as exceptions.

How Much Deposit Do I Need for an SPV Mortgage?

Host: I assume SPV mortgages need a higher deposit?

Ifthikar: Not really. Typically, you need 25% deposit, similar to a buy-to-let.

However, your ability to borrow depends on the stress test. High taxpayers face stricter stress tests, but SPVs can often borrow slightly more since they’re taxed differently.

What Is Stress Testing?

Host: You mentioned “stress testing.” What is that exactly?

Ifthikar: In simple terms, stress testing checks if you can still afford the mortgage if rates rise.

For example, if current rates are 5%, the bank may test affordability at 8.5%. They also consider your tax rate and possible void periods (when the property isn’t rented).

SPVs get some leniency because they pay lower corporation tax, not personal tax.

How Strict Are Lenders With Stress Testing Now?

Host: How does stress testing look in today’s market? Are lenders stricter than before?

Ifthikar: Yes, they’re a bit tougher now.

Fixed deals are often stress-tested at 8.5%, even if the actual rate is around 6%.

Variable rates are tested with a 2% buffer.

A year ago, stress tests were about 5.5%, so yes, it’s tighter now.

However, lenders have adapted. They’re keeping interest rates lower but charging higher product fees, which improves affordability and helps borrowers pass the stress test.

Why Are Product Fees So High?

Host: I noticed some SPV rates around 4.5–5%, but they come with a 5% product fee. That’s huge! Why is that?

Ifthikar: It’s how they package the deal.

By charging a higher product fee, they can offer lower interest rates — which helps borrowers meet affordability and stress test criteria.

It’s essentially the same cost overall but structured differently to make the loan work for more people.

Key Takeaways

• SPV = Special Purpose Vehicle, a company set up to buy property.
• Main benefit: tax efficiency, especially for higher-rate taxpayers.
• Interest costs are deductible for SPVs but not for individual landlords.
• Setup: easy to do, but get professional tax and mortgage advice.
• Deposits: usually 25%.
• Lenders: fewer but available.
• Stress tests: stricter now, but SPVs get more leniency.
• Product fees: higher to make rates and stress tests work.