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Our property investment expert is Jeni Browne, Sales Director at
Mortgages for Business
www.mortgagesforbusiness.co.uk
Tel: 0345 345 6788
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Question
What’s the deal with HMO mortgages?
I have one rental property which I am financing with a buy-to-let mortgage. I am hoping to expand my portfolio and have heard Houses in Multiple Occupation (HMO) is a strong growth area at the moment. Will the process for taking out a mortgage for an HMO differ to a standard buy-to-let? Also, do I need a specialist mortgage for this kind of loan?
Answer
The process of applying for an HMO mortgage is very similar to a normal buy-to-let. However, some lenders have some specific criteria relating to property letting experience before they will offer you an HMO mortgage, so be sure to do your research.
Whether you would need a specialist mortgage or not will largely hinge on the number of letting rooms – a small HMO (five or fewer rooms) may fall into mainstream buy-to-let mortgage, but more often than not, you will need to approach a specialist lender – a broker will be able to advise you on your options.
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Question
Weighing up the pros and cons of repayment and interest-only?
I am new to the buy-to-let world and am just in the process of securing finance for a rental property. One of the things I am considering is whether to take a capital repayment or interest-only mortgage. I have a residential property and I understand interest-only deals are discouraged in this sector.
So, why are they the norm in buy-to-let? What are the potential pitfalls of interest-only over repayment and vice versa?
Answer
So yes, interest-only is the norm when it comes to buy-to-lets. The reason is largely down to cashflow (often the rent would not cover a repayment mortgage, just the interest).
Additionally, some landlords prefer to keep their essential costs to a minimum and then build up a slush fund to cover void periods (a period with no tenants), repairs or even save up for a deposit on a further investment property.
In terms of the cons of taking interest-only, it depends on how you will be able to repay the mortgage at the end of the term. If your aim is to be left with an unencumbered (mortgage-free) property in the future, then you will need to focus on your repayment strategy to ensure that you can clear the mortgage down the line.
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Question
Applying for a mortgage as a ‘limited company’
I have three buy-to-let properties and am hoping to increase this at some point. I have decided to move to a limited company structure to benefit from the tax advantages this presents.
How do I go about doing this? And how will applying for a mortgage as a ‘limited company’ compare to applying as an individual? Will I need to approach a special broker?
Answer
The first thing you will need to do is set up a company – this is relatively simple to do via the Companies House website. See my guide on how to do this here.
Once this has been done, you are ready to take a mortgage. In terms of how this differs to a traditional buy-to-let, expect to pay around 0.7% more on the interest rate.
There are some complexities which I can’t go into here (without recreating War and Peace) so my suggestion is to find a broker who has a really good knowledge of Limited Company buy-to-lets, who can talk you through the process and advise on the things to be mindful of. Good luck!
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Question
Buy-to-let landlord buying my house!
I am currently selling my home and am weighing up two offers. One is from a buy-to-let landlord, who is offering slightly more. I am a little reluctant to accept as I don’t know anything about the buy-to-let mortgage borrowing process. I am worried it will take longer or that it’s harder to take out these mortgages and this might hinder my sale. Am I being over cautious?
Answer
Not only is your buy to let purchaser offering more, but they will invariably come chain free – an attractive proposition! I don’t believe that buy-to-let mortgages take longer to obtain than a traditional homeowner mortgage, nor are they harder to obtain. So please don’t let this be a factor in your decision making.
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