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How to finance large HMOs and Multi-Unit Freehold Blocks

How to Finance Large HMOs and Multi-Unit Freehold Blocks

Traditionally high-yielding, Houses of Multiple Occupancy (HMOs) and Multi-Unit Freehold Blocks are growing in popularity amongst the buy to let landlord community. However, even some experienced landlords shy away from the larger properties, but should they? Jeni Browne explains how you can finance properties at this end of the market and reap the financial rewards.

When talking about ‘large’ HMOs or Multi-Unit Freehold Blocks, it usually refers to properties with eight or more bedrooms or eight self-contained units, as this tends to be the limit for many buy to let lenders’ criteria. Above this, it’s widely believed that you’ll need a commercial mortgage; but that isn’t always the case! 

I recently spoke to an experienced landlord who was looking to refinance and capital raise on a Multi-Unit of 15 flats. She had an incumbent 20-year commercial mortgage on the property, and her monthly capital and interest repayments were higher than she ideally wanted. Despite speaking to her existing commercial lender, they declined her application because the rental calculation used (based on a capital and interest model) did not support the amount she wanted to borrow. The lady wished to remortgage to 75% loan to value (LTV) and use the released equity to purchase a new buy to let property; hardly an outrageous request. 

However, this call got me thinking. Here was an experienced landlord who had settled for a commercial mortgage, which typically attract higher interest rates, because until now no-one had told her that actually, there are buy to let lenders who would mortgage her property. How many more like her are there?! 

Here at Mortgage for Business, we pride ourselves on being able to deal with the very specialist end of the buy to let property market, and part of that ability comes from having access to many of the niche buy to let lenders. So, what are the real limits of the buy to let lenders when it comes to large HMOs and Multi-Units? 

  • HMOs up to 20 bedrooms and 20 self-contained units within a Multi-Unit 
  • 75% LTV with up to £5 million of borrowing on a single title 
  • Limited Company and personal name applications 
  • Terms of up to 25-years 
  • Capital and interest repayments or just interest only 
  • No maximum age restrictions 
  • No limits on background portfolios 

Currently, rates for these types of products start from 3.05%*, and there are even some with free valuations! As you can see, it’s not always necessary to use commercial mortgages to finance these properties; the buy to let offering is very reasonable.  

Streamlining your monthly cash flow by reducing your mortgage repayments can be tricky on high-value properties like these; however, it might be possible to move onto an interest-only facility. The landlord I mentioned at the beginning of this blog was delighted to learn that this might be an option for her, as most lenders who offer them will accept a repayment strategy of selling the property at the end of the term. Of course, there is always the option to move back to a capital and interest repayment mortgage at a later date, if the circumstances allow. 

If you’ve avoided purchasing a large HMO of Multi-Unit, whether due to an expectation of unmanageably high repayments or because you didn’t want to venture into commercial mortgages, do get in touch. You may be pleasantly surprised by the offering provided by specialist buy to lenders! Call us on 0345 345 6788 or email and one of our expert buy to let brokers will be able to assist. 

*Rates correct as at 27/10/20