The Client: A first-time landlord purchasing through her personal name.
The Property: An eight-bedroomed terrace HMO in a city centre location. The existing tenants were on one Assured Shorthold Tenancy (AST).
The Finance: Our client required a buy to let mortgage for the purchase.
The Challenge: While this appeared to be a straight forward buy to let purchase, our client was purchasing the property from her father, with only a 5% conventional deposit.
Our client’s father (the vendor), wanted to ‘gift’ some of the equity in the property to his daughter to be used as her remaining deposit, bringing her Loan to Value (LTV) to 70%
While gift deposits are quite common, using equity from within the purchased property is not. This unusual situation restricted the number of lenders available to us.
Furthermore, finding a lender which would accept an eight-bedroom property with the tenants on one AST rather than individual ASTs (as we would expect for an HMO of this size), was also going to be a challenge. The majority of buy to let lenders accept up to four-six bedrooms on a single HMO AST. Above this level is considered too much of a risk by the lenders.
The Solution: With access to the whole of the mortgage market, we were able to research lenders we knew had broader borrower and property criteria and would be more likely to consider our client.
After speaking to potential lenders about our client’s situation, we found one lender who would accept both a gift deposit in the form of equity and an eight-bedroom HMO with tenants on one AST, securing a suitable buy to let mortgage for our client. The client and her father very grateful and relieved to have found a solution. Here are the details:
Property value: 1,200,000
Loan amount: £844,346
Term: 25 years, interest-only
Mortgage payment: £2,713.45 per calendar month
Lender arrangement fee: 2% added to loan (£16,886)
Rental income: £9,800 per calendar month
20th March 2020