First-time landlords set up SPV Ltd Co to purchase student HMO

First-time landlords set up SPV Ltd Co to purchase student HMO

28.03.17 | Written by: Paul Martins

We were approached by two business partners from South East London looking to purchase their first rental property together.

On the advice of their accountant, the partners – both self-employed electricians - had decided that setting up an SPV for purchasing rental property would be the best option for them going forward.

Unsure as to how they would go about setting up this type of company, one of the partners carried out a Google search, which returned our guide to setting up an SPV. Once complete the partners then rang us for help in sourcing finance.

The pair were looking to purchase a 5-bed HMO in Nottingham which was already tenanted with students on a single AST.

In terms of finding a suitable lender, there were two main challenges with this case:

1. Neither applicant had any landlord experience – there are fewer borrowing options available to first-time landlords

2. Most lenders prefer the borrower to have general landlord experience before moving onto HMOs

We took the case to an intermediary only lender which took the view that, as the property was in a strong rental location with existing tenants, it would be willing to lend to the partners on the following terms.

Property value: £220,000

Loan amount: £165,000

LTV: 75%

Rate: 3.59% 3-Year Fixed rate

Term: 20 years

RTI: 125% @ 5.5%

Borrower: SPV Ltd Co

Mortgage payment: £501 pcm

Lender arrangement fee: £2,475 (1.5%) added to the loan

Rental income: £1,500 pcm

Gross yield: 8.18% pa

Consultant: Paul Martins, 01732 471616

ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.