Capital Raise Remortgage for Student HMO in Northern Ireland
The Client: An experienced portfolio landlord with five buy to let rental properties. He was looking to purchase another rental property by releasing capital from one of his existing investments.
The Property: A five-bedroom student let HMO. Situated in a popular university city in Northern Ireland, the property was a short distance from the main campus and city centre, making it ideal for students.
The Finance: In order to purchase a new buy to let property, our client wanted to raise a deposit using capital from the HMO through a remortgage. To maximise his yield, our client wanted the lowest rate possible at 75% LTV.
The Challenge: In this case, several challenges impacted our choice of lenders.
Firstly, the property was situated in Northern Ireland, which many lenders do not include in their criteria.
Secondly, despite being a five-bedroom HMO, our client let the property out on one AST agreement. Not only would this restrict which lenders we could approach, but it would impact how much our client could borrow. While letting the small HMO on one AST gave our client access to standard buy to let rates, rather than HMO products, it could impact the rental value used by the lender to calculate affordability. Traditionally, HMOs yield highly because you collect rents from each tenant rather than one rental payment from a household as with standard properties. As you’d expect, the former gives a higher rental income value to use in affordability calculations, thereby allowing you to borrow more. As our client let the property on one AST, we’d need to use a standard rental value rather than an HMO rental value.
Thirdly, we needed to source a lender that included students in their tenant criteria. Just because a lender accepts HMO properties doesn’t necessarily mean they accept students and visa-vera, so it’s essential to check the criteria thoroughly!
Lastly, as the purpose of this remortgage was to capital raise, we needed a lender that was comfortable with this and that didn’t require proof of an onward purchase.
The Solution: Firstly, we needed to identify the lenders that include Northern Ireland in the criteria before considering the other complexities. From this list, we examined each criterion to source those that underwrite student lets.
Shortlist in hand, we reviewed the available rates to identify our first choice of lender. We spoke directly with our contact at the most suitable lender and explained the additional details of the case. Reassured by our client's experience, the lender was happy to produce a mortgage offer for the property, allowing our client to release the funds needed to purchase another buy to let property. Here are the details: