The Clients: Introduced by another client of ours, this high net-worth couple had been running a property company for 18 months. When they approached us, they owned two unencumbered buy to let houses and were looking to build their portfolio.
The Property: Formerly offices, the building had been converted into a high-end 21 bedroom HMO, with one self-contained flat. The existing owner was looking to sell it with tenants in situ, making it an excellent addition to our client growing buy to let portfolio.
The Finance: As the HMO had over 20 bedrooms, our clients required a commercial mortgage to purchase the property. They intended to use the two unencumbered buy to lets already in their portfolio as security for this purchase, meaning we’d need a finance facility to accommodate all three properties under one term loan.
The Challenge: By using their two existing properties as part of the security, our clients wouldn’t technically be putting in a cash deposit for the new purchase. To further complicate matters, the two existing buy to lets were next to each other on the same road. We knew that some lenders would not be comfortable with this as it’s a higher risk.
As all three properties would be mortgaged on the same product, the chosen lender would need to complete three separate valuations. During the winter lockdown in late 2020, guidelines required that all tenants vacate properties while valuations were completed, which would be logistically challenging to organise. The clients were keen to complete before the original March 2021 stamp duty deadline, so we’d need to ensure the case moved along quickly.
We also needed to consider that some lenders may view our clients as too inexperienced to run an HMO property of this size. To reassure the lender, we’d need to ensure their application highlighted their solid business record in other sectors.
The Solution: Drawing on years of experience, we identified a few lenders who had accepted cases like this in the past and had criteria that fitted our needs. Approaching our top choice, we explained the details of the case and the strength of the applicants’ business experience. Comfortable with the case in theory, we were able to submit a formal commercial mortgage application.
With careful planning, the chosen lender completed all three property valuations safely, despite lockdown restrictions, which came back as expected. Comfortable with all the other supporting documentation and the profile of our client, we had a formal offer!
Late in the day, the seller of the HMO requested an additional £20,000 on the price. While this is a rare occurrence, it’s something we’ve dealt with before. Fortunately, given the strength of the portfolio, the lender was happy to adjust the loan to value to accommodate to extra. Despite this last-minute challenge, we worked closely with the lender to ensure a smooth process and the case was completed before the 31st March deadline. Here are the details:
Property values: £1,765,000
Loan amount: £1,200,000
Rate: 4.44% fixed for 5 years
Term: 10 years, interest-only
Mortgage payment: £4,529
Lender arrangement fee: 2% (£24,000)
Rental income: £132,000 per annum
Gross yield: 11%
Application: SPV property loan
Consultant: Andy Elley, 01732 471644
18th August 2021