We were approached by a couple – both part time landlords, who wanted to expand their portfolio with the purchase of a five-bed licensed HMO situated above a pub in Edinburgh.
The property type and location narrowed down the choice of lenders dramatically because:
- The property is located above a public house – deemed high risk by lenders
- The street in which the HMO is located is mixed residential and commercial
- Licensed HMOs can be expensive to fund in Scotland outside of the high street banks
- Japanese knotweed was a known issue in the area – something lenders tend to stay clear of
Fortunately, the clients had some points in their favour:
- Both employed in senior positions within the financial industry, their income would not be an issue
- The HMO’s current tenants were on a single tenancy agreement, which tends to be favoured by lenders
- The clients had a 40% deposit, so were only looking for 60% loan to value
- Edinburgh has a strong demand for rental property
- The property was in excellent condition
Before approaching a lender we liaised with a local valuer who deemed the property a good risk. We then spoke with the sales agent to ensure a survey had been carried out by a reputable firm who found that the Japanese knotweed in the area was not cause for concern.
We were able to source finance from an intermediary only lender who offered the following terms.
Property value: £347,000
Loan amount: £209,241
Rate: 2.54% 2 years discounted (Bank Rate + 2.04%)
Term: 25 years interest only
Borrower: Personal names
Mortgage payment: £445 pcm
Lender arrangement fee: 0.5% (£1,046)
Rental income: £2,250 pcm
Gross yield: 7.8% pa
Consultant mortgage broker: Gavin Elley - 01625 416398