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SPV for Property Purchases

When clients are looking for Property Finance I often deal with clients that have decided to setup a Special Purchase Vehicle (SPV) for their purchases. If this is done correctly then there are number of lenders who will except these entities but some lenders have tight criteria on how the SPV should be setup.

What is a SPV?

A Special Purpose Vehicle (SPV) is a type of limited company that is set up just to hold property and do nothing else. Buy to let lenders offering mortgages to corporate vehicles mostly prefer SPVs to trading limited companies because they are easier and quicker to understand and underwrite, and are perceived as being lower risk.

Many more landlords are now purchasing rental property via an SPV limited company because it can be more tax efficient now that the changes to tax relief on finance costs for individual landlords have been phased in.

What to look out for?

There are a few things to look out for when setting up your SPV to ensure you meet lenders criteria

SIC Code

The Standard Industrial Classification (SIC) is used to classify business activities and is recorded on Companies house when you setup your SPV. Many lenders will only accept specific SIC codes. These tend to be from the Real Estate Activity section, such as

68100
 
Buying and selling of own real estate
68209
 
Other letting and operating of own or leased real estate
68310
 
Real estate agencies
68320
 
Management of real estate on a fee or contract basis

However some lenders will only accept a few of the codes and not all of them. Its best to speak to the lender or broker before setting up your SPV to ensure its established with the correct SIC.

Shareholders

The best thing to do is keep it simple. Some lenders don’t like to see another LTD company as a shareholder of a SPV. Also remember that controlling shareholder or shareholders with 25% or more will need to be named on an application. They may also need to provide a personal guarantee.

Do I need a separate bank account?

Yes – The SPV will need to have a separate bank account from which any mortgage payments will be taken from. Lender will check that the account is setup in the SPV name.

What can I use the SPV for?

SPV’s can be used for Bridging Finance, Buy to Let and Development Finance – where the sole purpose of the SPV is just to hold property