The Client: Our client was an experienced landlord who came to us with a medium-sized portfolio that they had held for approximately 25 years, comprised of a mix of both buy-to-let and commercial properties. Our client planned on holding their portfolio for 5-10 years before beginning to dispose of their assets.
The Property: Our client owns a three-bedroom converted flat within a Victorian house outside of central London. While only having three bedrooms, the property is fully licensed and therefore subject to article four legislation. So, whilst not technically being big enough, it was legally (and licensed as) an HMO (House in Multiple Occupancy). The property was also set up for the tenants to work from home and commute to the city centre.
The Finance: Due to our client’s exit strategy, they wanted to reduce the cost of their mortgage payments until they sold their portfolio. They asked us to source a mortgage for the same amount of borrowing, taking advantage of the increased equity in the property and the lower mortgage rates available.
The challenge: Their were a couple of challenges that we faced with this case. The first was that our client had previously been to another broker, who had misplaced a deal with a lender that couldn’t actually offer on fully licensed properties. So, we had to make sure we could source a rate from a lender that would offer on HMO’s. As well as this, there was also another challenge in that our client was a portfolio landlord, which not all lenders accept. The final challenge was finding a lender that would stress test against our client’s portfolio, rather than the rental yield of the property. This was a challenge, as what with the property being in the capital, the yield will be smaller than the country average, making the interest rates higher for our client.
The Solution: Our brokers specialise in complex buy-to-let cases such as this and have access to the whole of the mortgage market, including specialist lenders. With this experience and exposure, we could find a lender that could lend on licensed properties to portfolio landlords and who would stress test against the landlord's portfolio rather than the single property, allowing us to source an excellent rate for our client. Here are the details:
Property value: £800,000
Loan amount: £393,875
Rate: lifetime tracker 3.39% + Bank of England Base rate
Term: 30 years interest-only
Mortgage payment: £1168 per calendar month.
Rental income: £3500 per calendar month.
Gross yield: 5.2% pa
5th January 2022