When considering buy-to-let borrowing, landlords have the option of applying for a mortgage as an individual borrower or through a Special Purpose Vehicle (SPV) Limited Company. In this blog post, we will explore the benefits and drawbacks of using an SPV Limited Company for buy-to-let borrowing based on UK mortgage lending criteria.
Firstly, it is important to note that an SPV Limited Company is a separate legal entity to the landlord. This means that any liabilities incurred by the property are the responsibility of the company, rather than the individual. This can provide greater protection for the landlord's personal assets.
From a lending perspective, many lenders prefer to lend to SPV Limited Companies rather than individual borrowers. This is because the company is seen as a more stable and secure entity, with clear ownership and management structures.
Setting up an SPV Limited Company can involve significant time and cost, including legal fees and ongoing accounting and administration costs. Additionally, not all lenders offer mortgages to SPV Limited Companies, which can limit the options available to landlords.
When it comes to tax implications, using an SPV Limited Company can be advantageous for high rate taxpayers. This is because rental income earned through the company is subject to corporation tax, rather than income tax rates that could be up to greater for high rate taxpayers.
In terms of mortgage lending criteria, there are some specific requirements that an SPV Limited Company must meet. These include having a specific Standard Industrial Classification (SIC) code related to property investment or management.
Individual borrowers, on the other hand, are subject to personal income and credit assessments, with mortgage lending criteria varying between lenders. This means that individual borrowers may have limited borrowing options, particularly if they have a poor credit score or limited income.
In conclusion, using an SPV Limited Company for buy-to-let borrowing can provide greater protection, particularly for high rate taxpayers. However, it is important to consider the time and cost involved in setting up and maintaining an SPV, as well as the specific lending criteria required. Ultimately, landlords should seek professional advice to determine the best option for their individual circumstances.