Student Let HMO Mortgage for Landlord with Only Rent for Income
The Client: Our client was an experienced buy to let landlord who had owned an HMO property for 20 years in his personal name.
The Property: A five-bedroom, student let HMO in a South Western university city; it was easy walking distance to the city centre, university campus and a train station.
The Finance: Our client required a 75% LTV, limited company buy to let mortgage to purchase the property. This deal would be his first purchase into his newly set up SPV.
The Challenge: When the client approached us, there was still a lot of uncertainty about whether students would return to universities in the on-going COVID-19 crisis. Lenders were nervous about returning to this part of the market, concerned that student let landlords would be left with huge rental voids if students remained at home. Similarly, not all the lenders which previously included HMOs on criteria had returned to this space in the market either, meaning we were already restricted as to how many lenders we could approach with this deal!
In addition to the property criteria challenges, our client was unusual in that he didn’t own his own residential property and his only form of income was rent from his existing HMO. Many lenders insist that applicants own their own home, especially if you’re trying to enter the more specialist end of the buy to let market such as HMO ownership. While some lenders will accept rental income as sole earnings, it’s usually in circumstances where the applicant has a portfolio of properties, as this spreads the risk of rental voids and therefore financial difficulty for the landlord. With only one buy to let property, many lenders would consider this an insufficient income stream and source to support another buy to let mortgage. Furthermore, our clients’ parents were gifting the deposit for the purchase, which not all lenders will accept as a source.
The Solution: We’re always tracking changes to lender criteria, which meant we were able to quickly find out which buy to let lenders were accepting student HMOs at that time. From that selection, we approached them with the individual circumstances of our client, to gauge whether they would be able to offer the mortgage that he needed. Despite the limited choice, one of the specialist buy to let lenders was satisfied that the income our client earned from his existing HMO property was sufficient enough to meet their affordability calculations for the personal guarantee. The lender also accepts gifted deposits.
Although he didn’t own his own home, the lender was content that he owned a buy to let property, and therefore wasn’t a first-time buyer or landlord. The fact his existing property was an HMO further strengthened his case, as they are traditionally a more difficult buy to let property type to manage, which demonstrated his experience.
Thankfully, it became clear that students would be returning to their universities, which meant mortgage rate pricing also came down in response. Our client was delighted when we were able to submit his application and help him on his way to expanding his HMO property portfolio! Here are the details: