The HMO mortgage for first time buy-to-let landlords

As a first-time buy-to-let landlord, you might be wondering about the possibilities of securing an HMO, or house in multiple occupation. Lenders are typically wary of this type of property as there are multiple residents, meaning it can be more difficult to repossess the property if the borrower does not keep up with the payments. When paired with the inexperience of a first-time-buyer, this can be too much risk for many lenders to even consider.

Raising finance for an HMO property is often more difficult than with a regular buy-to-let mortgage. Lenders will want to see at least 6 months of experience managing a similar property, such as self-contained buy-to-lets. However, buy to let landlords know that HMOs offer the best rental yield. The risk is also spread over multiple tenancies. This reduces the chance that a property will be left vacant. So it makes sense for first-time landlords to explore this option.

While some lenders are starting to open up to the prospect of lending to first-time buyers with a buy-to-let mortgage for an HMO, it is not without its downsides. Naturally, lenders will look to manage their risk on any lending arrangement. In this case, they will attach a high premium to this type of lending, typically in the form of higher fees. This type of mortgage is therefore only suitable for the financially astute landlord who will know how to make up for the added costs.

Remember that the interest and fees on your buy-to-let mortgage can be offset against your tax liability, so this is another potential area of savings. This makes the prospect of purchasing an HMO even more attractive for investors.

To learn more about the opportunities available within the buy to let market, get in touch with the friendly team at Niche Mortgage Info today.

Purchasing property for children under 18

Buying a property for your children is a great way to secure their future. Many parents will look to purchase a property when their children are studying as it will give them a place to live rent-free. If they share with friends, their friends' rental income can pay their way through higher education. And when they finished studying, they have a property they can live in, rent out or sell on.

While you could wait until your children are over 18, there are options to start the process even earlier. There are special mortgage products designed for parents who want to purchase property before their children are 18. This could start as soon as they are born. By the time they are ready to go to university, the property will have increased in value and the future equity could even pay their fees.

Criteria for buying property for your children under 18

In general, you will need to meet the following lending criteria:

  • No minimum age for the children.
  • A limited company would be formed with the parents as “directors'' and the children as “shareholders. The parents are the guarantors of the mortgage and must be aged over 25.
  • Between 20-25% deposit required.
  • The property must be purchased with the intent of letting it to an unrelated tenant.
  • The property could be structured as a single-family let, multi-let or HMO. A holiday let or AirBnb is not permitted.
  • Must have a maximum of 20 properties and up to £10m in mortgages.
  • The mortgage term must be no more than 35 years.
  • The rental yield must cover at least 125% of the mortgage payments.
  • Credit problems over 12 months old may be considered.

If you want to explore how you could secure your child’s future with a buy to let property, explore our guides or get in touch today.

Renting a buy to let property to family

It’s a noble thing to want to help a family member out by letting them live in your buy to let property. Unfortunately, your lender might not see it this way. In this article, we will look at some of the steps you can take to rent to a family member without worrying about your mortgage provider.

What is the issue with renting to a family?

Buy to let properties are essentially a business, and they need to be operated as such. The issue a lender will have with you renting to a family member is that you are likely to offer them a below-market rent. You are also much less likely to chase missing rental payments.

When making a decision on a buy-to-let mortgage, lenders will look at the market value of the property to help them determine if the mortgage is affordable. Remember that many buy-to-let mortgages are secured without looking at the rest of your finances. Lenders make a decision based on the rental income more than covering the mortgage payments. They don’t have any way to accommodate your charitable adjustments to rent.

This isn’t the only reason for lenders to be wary. The Financial Services Conduct Authority also imposes consumer safeguards on any property that is used at least 40% by a family member. This means that the lender and broker have to justify their recommendations.

A new wave of checks that came into play in April 2014 also increased the bureaucracy for lenders. This led to many prominent figures leaving the family lettings market due to added pressure. This included BM Solutions, which is a prominent figure in the buy-to-let market. The new difficulties and checks required for renting to family members make this route unviable for many lenders.

What solution is available?

We aren’t called Niche Mortgage Info by accident. We can facilitate an introduction to brokers with access to lenders still offering a buy to let mortgage that will enable you to rent to family members. This isn’t about finding a loophole; rather, it’s about finding a lender that actively allows lets to close family members.

However, it’s important to note that the solution isn’t as simple as you might like. In essence, you would be securing a second residential mortgage that allows rentals. This means that affordability would be based on your income and not the potential rental yield. Another point to note is that many lenders will require the mortgage to be on a repayment basis and not interest only.

Below we can explore some of the criteria you can expect to face when looking for this type of mortgage. Note that this is a broad picture of the sector and should not be taken as a guarantee of acceptance.

Criteria for buy to let family rental

  • Minimum income of £25,000, for at least one applicant, not including pension or benefits.
  • 40% deposit
  • Applicant must be an owner-occupier, but the property can still be mortgaged.
  • No gifted deposits accepted.
  • The property must be standard construction.
  • Must be able to afford both mortgage payments.
  • Mortgage terms up to 75 years of age.
  • London and M25 properties must be valued at over £300,000.
  • Portfolio with no more than 10 properties.
  • Rent must cover 125% of the mortgage payments

The section most likely to trip up applicants is the no gifted deposits. This is because the person planning to rent the property must not be the one who has given you the deposit. To avoid this entirely, lenders ask for you to provide the deposit.

If you are looking to purchase a property for a family member to live in, get in touch with Niche Mortgage Info today. We can help to guide you through the process and put you in touch with brokers who can help you secure the mortgage you need.

Can you remortgage a buy-to-let property after 6 months?

This article will explore how you could raise additional funding on a property that was originally bought in cash or bridging finance. Any buy-to-let landlord would assume that securing a mortgage on a property you already own would be simple, but it isn’t always the case.

Lenders are rightly sceptical about where the money is coming from. They like to be in control of the facts and aren’t easily swayed by buy-to-let landlords operating like property developers. Many building societies will rule out lending to property developers entirely. If you have purchased a property with cash and want to remortgage in a short space of time, you can expect your application to undergo additional scrutiny.

What is the rule for remortgaging a buy-to-let within 6 months?

The majority of lenders will have a minimum term before you can remortgage a property, including buy-to-let properties. It doesn’t matter if the property is mortgaged or bought with cash, lenders will want to see a 6-month gap between transactions.

How can Niche Mortgage Info assist you?

There are a few lenders that will be willing to offer mortgage products with a shorter waiting period between transactions. These lenders will also work from the original purchase price, regardless of the work that has been completed since you bought it. There is always an exception to the rule, but the first step should always be to start a conversation.

It’s worth noting that the maximum you would be able to raise would be 85% of the value, so if you purchased a property for £100,000, you’ll only be able to access £85,000. This is to ensure your repayments will not exceed the potential rental yield.

To find out more about borrowing on a property you already own, get in touch with our expert team today. We can help you to find the right remortgage provider for your needs.

Accessing buy to let mortgage with no early repayment charge

As a niche mortgage specialist, we are often asked about buy to let mortgages and early repayment charges. Typical questions include:

  • What rates and fees can I expect with a no ERC mortgage?
  • What criteria do I need to meet to access this type of mortgage?

There are many reasons borrowers want access to a no ERC buy to let mortgage. These include:

  1. They are looking to renovate the sell the property quickly, but don’t want to access bridging finance due to the associated costs.
  2. They want to purchase a property, let it out for a specific period of time and then convert it to a residential mortgage.
  3. They want to renovate the property and want the option to remortgage once the value has increased.
  4. They plan to sell another property to reduce the balance on the newest property.
  5. They want the freedom to switch to a five-year fixed-rate mortgage when rates look like they are set to rise.

In general, these are the criteria you will need to meet in order to secure a buy to let mortgage with no early repayment fees.

  • Must be a residential homeowner.
  • This must be a purchase or remortgage, so not a first-time-buyer.
  • You must have at least a 25% deposit.
  • Cannot accept DSS tenants.
  • The minimum property value must be £75,000.
  • The minimum income must be £25,000.
  • Total value of property portfolio cannot exceed £5m.
  • Terms must not continue past 80 years old.
  • You must have an excellent credit history.

What would a no early repayment buy to let mortgage look like?

The following example is based on a purchase price of £175,000 with an interest-only mortgage of £131,250 over 25 years.

Option 1: two-year LIBOR tracker mortgage

Initial rate: 3.80% (APR 5.4%)

Valuation fee: free

Arrangement fee: £1,312.50

Admin fee: £150

The mortgage repayments start at £415.63 per month for two years. After this time, the mortgage reverts to the lender’s variable rate.

In addition to these charges, there is a funds release telegraphic transfer fee of £50. There are no early repayment charges. On full redemption, there will be a funds release fee of £90 and a sealing fee of £150.

Option 2: lifetime variable mortgage

Initial rate: 4.05% (APR 4.2%)

Valuation fee: Free

Arrangement fee: £749

Booking fee: £250

The mortgage repayments would start at £442.97 per month and remain the same for the lifetime of the mortgage.

In addition to these charges, there could be a telegraphic transfer fee of £20. There are no early repayment charges. Once paid in full, there is simply a mortgage discharge fee of £125.

Things to note before moving forward

There isn’t much competition between lenders for this type of mortgage simply because lenders want long-term customers. There isn’t much interest in short-term relationships, so you may find that rates and fees are higher than with other mortgages.

Making your capital work for you is a trick that requires experience and expertise. We have access to a range of mortgage brokers who can help you to make your investments work harder. If you’re looking to secure a buy to let mortgage with no early repayment fees, our team can help to connect you with the right brokers. Get in touch or explore our buy to let guides to find out more.

Choosing the right solicitor for a limited company buy-to-let mortgage

A key part of any property purchase is the conveyancing stage. For a limited company buy-to-let mortgage, this process can be more challenging than a typical residential mortgage application. To protect your interests, it’s important to choose a solicitor with experience in this sector.

Limited company conveyancing is often too complex for smaller solicitor firms. There are additional steps to be considered and these could have a significant impact on the outcome of your purchase. These are just some of the extra steps to be considered:

  • Tax on transfers. Your solicitor will have to determine if CGT and SDLT exemptions on the transfer from a named individual to a limited company will apply. Remember that CGT could be as high as 28% and SDLT at its highest rate with a 3% surcharge could make a significant difference to your bottom line. These exemptions will only apply as a one-off, so your entire portfolio must be transferred to your limited company at the same time. This requires careful coordination.
  • Negative pledges. For trading companies with existing buy-to-lets within them, you would need to get written consent from each lender to confirm they are content with the new lender’s charge to be ahead of theirs.
  • Companies house. In addition to updating the Land Registry, you would also need your solicitor to register the property with Companies House as this is considered to be a significant change to the business. This notification is required within 21 days, otherwise, the lender’s legal charge is rendered void. You would have to go to court to fix this issue.
  • Letter of crystallisation. In addition to the negative pledges, you also need a letter of consent from existing lenders which has to be delivered no earlier than 24 hours from completion. This isn’t always simple to achieve when there isn’t much incentive for existing lenders to agree to prioritise this above their own business goals.
  • Personal guarantees and floating charges. Lenders will also seek to secure the personal assets of company directors in the case of a limited company mortgage default. This means that every company director involved will need to seek their own legal advice, but this process needs to be overseen by the lead solicitor. With a larger firm, this can often be arranged in-house.

The other considerations to take into account when looking for a solicitor for your limited company buy to let mortgage are:

  • HMOs. If you are planning to operate a house of multiple occupations, you will need a license in place.
  • EPCs. These are legal requirement for all rental properties. You will need to arrange an energy performance certificate review, and ensure that your property meets the “E” grade or above.
  • Planning permission. If you need to reconfigure your property, you might need planning permission. Working with a larger firm can ensure you have access to all of the specialities you need.
  • Tenancy agreements. You should ensure that an assured shorthold tenancy agreement is in place, otherwise, tenants could claim to the sitting tenants in the event of a repossession.

Conveyancing for a limited company director is certainly complex, so it’s important not to cut corners to save money. A 2016 survey by a professional indemnity provider revealed that poor conveyancing was at the heart of 50% of all legal claims.

If you need support finding the right conveyancing solicitors for your needs, Niche Mortgage Info can put you in touch with the right people. We work with several brokers with experience across buy-to-let and limited company property purchases.

Buy to let mortgage products for first-time landlords with a limited company

If you are thinking about getting into the property market and using a limited company to secure a buy to let mortgage, this article is for you. As a niche mortgage adviser, we can help you to secure a buy to let mortgage from a limited company. However, it’s worth noting that we are not a tax specialist. If you are looking to maximise your tax position, we recommend working with a tax advisor or solicitor.

As a first time landlord, you will be in a unique position. As you have no legacy preventing you from holding properties in a limited company, you can take advantage of the following perks:

  • All of your company profits will be taxed at corporation tax rates.
  • Income from the property will be drawn from the directors’ remuneration, which means it will utilise the personal tax allowance. It may also be drawn as dividends which is a lower tax rate than income tax.
  • You can offset a greater portion of property and interest charges.
  • You can use multiple limited companies to offset management expenses.
  • It’s much easier to add or remove share/titleholders to aid in succession planning.
  • The current buy to let mortgage rental coverage calculations may be lowered, as these are aimed at protecting individuals rather than limited companies.

Many buy to let lenders want to see the company set up as a special purpose vehicle, which means it is used only for the property. This helps to keep everything within the correct SIC codes. You can easily set up a company online and use a tax specialist to ensure you are maximising your position. As a new buy to let landlord, the lender might want to see a personal guarantee as added protection.

In general, the number of directors will be limited to 4 and you will need a minimum 25% deposit to secure a buy to let mortgage.

If you are interested in exploring the possibilities of using a limited company to manage your buy to let portfolio, we recommend seeking expert advice from a solicitor, accountant or tax advisor. Once you have chosen the right route, we can help to connect you with a buy to let lender. There will be restrictions on the type of property you can buy as a first-time buy-to-let landlord.

Securing a buy to let mortgage for DSS tenants

If you plan to let a property to tenants in receipt of DSS benefits, you will need to secure a special mortgage. Many lenders are still nervous about DSS benefits, as they consider these to be higher risk tenants. There is an outdated belief that those on benefits are more likely to miss rental payments which will have an impact on the borrower’s ability to make their mortgage payments.

Some lenders will justify their stance by pointing to the fact that they have experienced a higher number of repossessions from properties with DSS tenants. They might also point to past experience of DSS tenanted properties being kept in a lower than average standard. In the event of repossession, this could make the property more difficult to sell.

The vast majority of landlords would be willing to let a property to DSS tenants, but their mortgage provider won’t allow it. It is down to the landlord to seek out a buy to let mortgage provider that will consider applications on a case-by-case basis.

There is an argument to say that DSS tenants will be more reliable with their rental payments, as their income is provided by the government. There is no risk the tenant will lose their job and be unable to make payments. Financial advisors will tell you that a Government-backed investment is “no risk” because the government has never failed to meet its commitments. Yet when it comes to DSS tenants, there is the belief that this carries higher risk.

Professional landlords often prefer DSS-supported tenants as there is always a steady supply of tenants and they have a secure form of income. This reduces the chance of void periods that are more common with non-DSS tenants.

There are some good lenders out there who are willing to work with DSS-tenanted properties. If you are a landlord hoping to secure a buy-to-let mortgage that allows you to accept DSS tenants, get in touch with Niche Mortgage Info today.

We can help to connect you with the right lenders and secure a mortgage that works for you. Remember that a mortgage that allows you to accept DSS tenants doesn’t limit your choices but rather broadens them. You’ll have a greater pool of tenants to choose from, allowing you to limit void periods.

Can I buy the house next door and rent this out?

We hear a surprising number of questions about buying the property next to your current house to turn it into a rental. Renting the home next to our existing house has some distinct advantages. You’ll always be close by to keep an eye on the property and you’re much more likely to be able to secure your rental payments if you live next door. Or you might want to rent to your family.

Despite the simplicity for the landlord, underwriters are often nervous about this type of property purchase. If you own two adjoining properties and have an individual mortgage on each home, this is considered a higher risk to the lender.

If you were to knock through the walls and turn two properties into one, the lender would be none the wiser. And if you were then to default on one of the two lending products, the lender would have a much tougher time trying to repossess the property.

It might take a bit of a wild leap to reach this point, but underwriters are paid to identify risk, and this is one type of risk that they can easily avoid. While it might be convenient to own two adjoining properties, lenders certainly don’t see it this way.

Buying the property next door

Lenders such as Santander and Metro do not lend on next-door properties due to the risk of the homeowner knocking through and turning two properties into one. Their stance will soften if there is a divide between the properties. So you could purchase a detached or semi-detached property, provided they are not linked. Yorkshire Building Society takes a similar approach to lending.

Post Office and Natwest are slightly more flexible in their approach, passing the responsibility to the surveyors to determine if there is a risk the properties could easily be adjoined. This can be more stressful, as it could be further through the application process when the surveyor decides not to lend.

To further complicate matters, lenders will also have their own limits on how many properties in an area can be mortgaged to them. They might set a limit at 10% per street, so if there are only 10 properties on the street and you already have a mortgage with one lender, they might be unwilling to take on another property in the same area.

To find out your next steps if you would like to purchase the property next door as a buy to let, get in touch with Niche Mortgage Info today. We can advise on the best course of action and the lenders most likely to consider your application.

Securing a buy to let with no minimum income

It goes without saying that no one would venture into buy to let property purchases without savings in the bank to cover repairs and void periods. Yet according to many UK mortgage providers, this is what lenders believe many are trying to do.

The majority of lenders will want to see additional income to support a buy to let application in the form of PAYE of self-employment. And this income has to be separate from rental yield. This blanket approach to mortgage applications could be hurting the sector and preventing some people from investing in property.

If a mortgage payment on a property is just £350 yet the property brings in £1000 every month, the landlord has access to reserves which can be put towards repairs and to cover void periods.

It’s hard to imagine a landlord doing this any other way, or taking on a mortgage that is barely covered by the rental payments. Before making the investment, every landlord will weigh up the cost of the investment versus the potential returns. However, many lenders are still reluctant to take on borrowers who plan to cover their mortgage payments and repairs with rental income alone.

Top solutions for buy to let investors

While not widely advertised, there are lenders willing to work with borrowers in this situation. This type of lending product does not rely on additional income, so it can be used by those on fixed income such as retired individuals. It’s open to anyone ages 21-70 provided you have owned at least one rental property before. It has to have been rented out in the last 6 months, so this would not be suitable for first time landlords.

The deposit can be as little as 20%, but as with all mortgages, the more deposit you can provide the better the rates will be. Your income can be from any role, even if you have just started the job. It can also be from retirement income, which is a great way to supplement your income at a time when saving rates are so low.

The rental yield is important for this type of mortgage. Lenders will want to see that the rental yield will cover 125% of the mortgage. So, if your mortgage is £1000 per month, you need to rent out the property at £1250 per month. This rule will depend on the loan to value, so the lender may be more flexible if you are asking for a smaller LTV.

To find out how you can make the most of buy to let mortgages with no minimum income requirement, get in touch with Niche Mortgage Info today. We can provide advice and support to guide you through the application process. We also offer extensive guides to help you understand your position.