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Once you have sourced your property, then finding the right mortgage depends on a number of factors. To help here, it is a good idea to go to a broker who will be able to advise you on what is available. If you don’t have a good broker then talk to me as I have some very good contacts. Most lenders prefer experienced landlords, and typically they have a lower loan-to-value (LTV) and are more expensive. They also have a number of stipulations like no more than five tenants in a property, and only one AST (Assured Tenancy Agreement). Others, however, will offer on more than five tenants and more than one AST.
Other factors also affect the mortgage, such as the price of the house and the rental income, which has a large part to play in deciding on the final mortgage. The rental income will need to satisfy the lender’s rental income stress test. At the moment, this is calculated on a rate of 5.5% at 125%. This means that the rental income needs to be 125% of the mortgage payment on interest only, based on a rate of 5.5%. With HMOs, this is normally easier to fit the requirements, as the rental income could be considerably more with multiple tenants than it would be if it was one family.
Example:
Mortgage required: £150,000
Mortgage payment based on 5.5%: £687.50pm
£687.50pm x 125% = £859.37
Rental income requirement would be a minimum of £859.37. This would be assessed by the valuer.
Some lenders will of course consider new landlords, but the mortgages are more expensive due to high failure rates. It might be better for example to start on single buy-to-lets (BTLs) before growing the portfolio to HMOs and you could consider Airbnb-style lets. You also need to be realistic in valuing the property, as some investors try to do it based on higher rental rates where lenders are often more conservative. Lenders would normally value it as a single property rather than a HMO unless it was licensed.
So I hope this is helpful. I do recommend that you go to a broker to find the best available rates as they will understand the market. If you need help with that, or you need help sourcing a property and then finding tenants, then please contact me via hasan@home-share.co.uk or give me a ring on 07944 726 676.
