The Clients: A husband and wife who had inherited three, student buy to let properties in a South West university city, of which at least one was an HMO. They owned all of these in their personal name.
The Properties: Our clients were looking to remortgage a three-bedroom HMO and purchase a vanilla terraced property with three spacious double bedrooms. Both properties were situated in different but popular student areas of the city, with easy access to the campus, the city centre and local transport.
The Finance: The first finance we needed to organise was the remortgage and capital raise on one of our clients’ existing student HMO properties. The capital raise was to fund the deposit for a new purchase of another student property in the same city, which would add a fourth buy to let to their portfolio.
The Challenge: Seemingly straight forward, this case had several interesting challenges to deal with! Firstly, the clients approached us not long after the first lockdown restrictions eased, at a time when the recovering mortgage market was still restrictive in terms of criteria and choice of mortgage rates. Many lenders were not accepting HMOs and student properties in particular, due to the uncertainty in those markets.
Secondly, we needed a lender with to remortgage the existing buy to let property who would accept a student HMO, and be comfortable with the client releasing equity with no onward purchase already lined up. Once our clients had found the new property, we then needed the lender to accept a deposit from a capital raise of an existing investment property as not all of them accept this deposit source.
Thirdly, as our clients were purchasing their fourth buy to let property, we could only approach lenders who accepted ‘portfolio landlords’ in the criteria for the new purchase. Already, our list of available lenders was decreasing!
Lastly, the quirkiest aspect of this case was the clients living arrangements. While they owned their own residential property, they lived in a different home provided with the husband’s job. This situation caused issues trying to prove our clients’ primary residence, as the addresses on their bank statements did not match those on the usual documents used as proof of identity, such as drivers’ licences and the electoral roll.
The Solution: Although the refinance and purchase cases did not happen concurrently, solving the problems was a similar process for both. To solve the initial challenges, we had to research the whole buy to let mortgage market to identify which lenders had appropriate criteria available at the time. It was essential to secure products as quickly as possible, as many lenders were adding and withdrawing popular products regularly to maintain service levels, which made it a challenge to secure the competitive rates!
After sourcing appropriate lenders with suitable mortgage rates for our clients, which included no arrangement fee and £300 cashback for the remortgage, we knew we’d have to collect additional supporting documents to prove the unusual residential situation of our clients. We requested documents from the husband’s employer as proof of their living arrangement and why the addresses on the usual supporting documentation did not match! After speaking to the lenders directly and presenting them with the documents as part of the mortgage applications, they were happy to proceed, and our clients were able to expand their buy to let portfolio successfully! Here are the details:
Property One – HMO Refinance & Capital Raise
Property value: £325,000
Loan amount: £244,000
Rate: 2.21% two-year fixed
Term: 20-years, interest only
Mortgage payment: £449 per calendar month
Lender arrangement fee: None.
Rental income: £2,300
Property Two – Terrace Purchase
Property value: £270,000
Loan amount: £202,000
Rate: 2.09% five-year fixed
Term: 25-years, interest only
Mortgage payment: £543 per calendar month
Lender arrangement fee: £1,995 added to loan
Rental income: £1,192 per calendar month
14th October 2020