The Clients: A married couple who owned two buy to let HMO properties under their personal names. Having owned the properties for several years, they were experienced landlords and managed their HMOs well.
The Property: A five-bedroom detached property located a popular university town in the South of England. The property was a short walk from the main campus and the town’s local attractions, making it desirable for students.
The Finance: Wanting to purchase another buy to let property, our clients wished to raise capital for a deposit by remortgaging one of their existing HMOs. In order to maximise their yield, they were after a competitive interest rate at 72% LTV.
The Challenge: In this case, our main challenge was finding the most competitive rate for our clients. However, due to the complex nature of HMOs, they typically attract higher mortgage interest rates compared to vanilla buy to let properties. We would need to find a way to secure as lower a rate as possible that also didn’t attract too many additional fees to keep costs down for our clients.
The Solution: As the property is a sizeable five-bedroom student house, we first needed to fully understand the tenancy agreement in place before we could begin looking at mortgage products. In this case, all five students were on a single AST, which is slightly unusual for an HMO of this size.
As the property was only five bedrooms, we knew that some specialist lenders would accept the student property under one AST agreement. As this meant it wouldn’t be classed as an HMO, it could be mortgaged on a standard buy to let mortgage.
While this solution would give our clients access to a lower mortgage interest rate, we would still need to make sure the property met the affordability calculations required to raise our clients’ capital for their onward purchase. This is because we would only be able to use a standard family let rental income for the loan assessment rather than the figures based on a five-bedroom property. Fortunately, this still allowed us to borrow the amount needed for our clients.
As the affordability calculations all worked out, we were able to secure a fantastic remortgage rate with a free valuation and no legal fees for our clients! Here are the details:
Property value: £330,000
Loan amount: £237,000
Rate: 2.04% five-year fixed
Term: 20 years, interest-only
Mortgage payment: £405.60 per calendar month
Lender arrangement fee: £1,995
Rental income: £2,125 per calendar month
Consultant: Agata Rogozinska, 01732 471602
23rd June 2021