8th March 2024

SPV mortgage vs personal BTL

The world of property investment is filled with different financing options, each with its own set of advantages, use cases and complexities. Two popular choices are Special Purpose Vehicle (SPV) Mortgages and Personal Buy-to-Let (BTL) Mortgages. Understanding the differences between these two can really help investors make informed decisions. So in this article, we're going to compare these two financial products, look at their benefits and more to help you make the right financing choice.

What is an SPV Mortgage?

Special Purpose Vehicle (SPV) Mortgages are loans granted to a company specifically formed for property investment, usually limited by shares. The SPV is a separate legal entity, which means the mortgage is not held personally by the investor. This distinction means that an SPV mortgage has several key features that make it the right choice in certain scenarios. These include:

• Legal Structure: An SPV is its own distinct legal entity, usually a limited company, created solely for property investment. This structure means the mortgage and property ownership are under the company's name, not the individual investor's.
• Tax Benefits: One of the main reasons investors opt for an SPV Mortgage is the potential for tax efficiency. The SPV pays corporation tax on its profits, which can be lower than personal income tax rates. Also, it allows for more flexible profit distribution, such as dividends, which may be taxed differently than rental income on a personal level.
• Limited Liability: As a separate legal entity, an SPV provides limited liability protection. This means the personal assets of the investors are generally protected in case the investment faces financial difficulties.
• Mortgage Terms and Lending Criteria: SPV Mortgages might have different lending criteria compared to personal mortgages. Lenders may consider the SPV's creditworthiness, the rental income of the property, and other financial factors specific to the business.
• Ease of Portfolio Expansion: For investors looking to build a large property portfolio, an SPV can simplify the process. Owning multiple properties under one company can streamline management and accounting practices.

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Considerations and Limitations

Despite the advantages, SPV Mortgages aren't ideal for all circumstances and pose several limitations, such as the complexity of setting up and managing a company, accounting requirements, and the potential for higher interest rates. So it's always worthwhile speaking to a professional mortgage advisor to better understand if this option is right for you.

What is a Personal BTL Mortgage?

A Personal Buy-to-Let Mortgage is a loan for buying property that the borrower intends to rent out. Unlike SPV Mortgages, these are held in the individual's name and not through a company. This mortgage type is different from a standard residential mortgage and carries its own set of features:

• Personal Ownership: A personal BTL Mortgage is taken out by an individual in their name. This means the property is personally owned by the investor and not through a company structure.
• Taxation on Income: With a Personal BTL Mortgage, the rental income received is subject to personal income tax. This income is added to any other personal income the investor has and taxed accordingly, potentially placing the investor in a higher tax bracket.
• Mortgage Terms: Personal BTL Mortgages often have different terms compared to residential mortgages. Interest rates may be higher, and lenders typically require a larger deposit. The lending decision is often based on the potential rental income from the property as well as the individual's financial situation.
• Regulations and Eligibility: Personal BTL Mortgages are subject to different regulatory requirements compared to SPV Mortgages. Lenders will assess the individual's credit history, income, and other personal financial factors.
• Simplicity and Accessibility: For many investors, especially those starting out or with smaller portfolios, Personal BTL Mortgages offer a simpler and more direct way to enter the property investment market.

Drawbacks and Considerations

The main drawback of Personal BTL Mortgages is the personal tax liability. Rental income is added to the individual's other income, potentially pushing them into a higher tax bracket. What's more, tax laws have reduced the attractiveness of personal BTLs for some investors. As rental income falls under the same tax bracket as regular income, you'll have to pay the basic rate of 20 %. However, if your rental income pushes you into the higher tax rate, you'll have to pay a 40% rate of tax.

Suitability for Different Investors

Ultimately, the decision to choose an SPV or BTL mortgage will boil down to your own circumstances. So, to help you determine which option is best for you, let's go over their suitability for different investors:

Who Should Consider an SPV Mortgage?

SPV Mortgages are ideal for investors who plan to build a significant property portfolio, are higher or additional rate taxpayers, or want to keep their investments separate from personal finances.

Who is Best Suited for a Personal BTL Mortgage?

Personal BTL Mortgages are more suitable for individuals who are starting with property investment, are basic rate taxpayers, or prefer a simpler structure without the complexities of running a company.

Making the Choice: SPV Mortgage vs Personal BTL

When choosing between an SPV and a Personal BTL Mortgage, consider factors like your tax bracket, investment goals, the scale of your portfolio, and your willingness to manage a company.

Given the complexities, it is always advisable to seek professional financial and tax advice before making a decision. This ensures that you choose the option that best aligns with your financial goals and circumstances.

SPV Mortgage v Personal BTL: Which Option is Right for You?

Both SPV Mortgages and Personal BTL Mortgages have their place in the property investment landscape. Your choice depends on your personal circumstances, investment goals, and tax situation. With the right strategy and advice, either option can be a valuable tool in building a profitable property portfolio.

If you're still unsure about which financial product is best for you, then please contact our team at WIS Mortgages today for prudent financial advice.

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Frequently Asked Questions

Q. Is an SPV mortgage worthwhile?

A. An SPV mortgage can be incredibly useful when it comes to property investment because it mitigates tax risks associated with the investment. As the SPV is viewed as a separate legal entity, it will only pay corporation tax on any profits made from the investment. It also removes the issue of pushing your own tax bracket into the higher rate of 40%.

Q. How hard is it to get a BTL mortgage?

A. Securing a BTL mortgage will largely depend on your financial circumstances and credit score. You'll likely be asked to hold at least a 25 % deposit and prove that your rental payments will cover 125 % of the monthly mortgage payments.

As a mortgage is secured against your home or property, it may be repossessed if you do not keep up the mortgage repayments. The Financial Conduct Authority does not regulate taxation advice or commercial buy-to-lets.

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