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BTL Mortgage - and convert to HMO?

 

THE QUESTION

With regard to mortgages and HMOs if you buy a house using a BTL mortgage, with a no Early Repayment Charge can you then convert the property to an HMO and swap the mortgage over to an HMO mortgage?

THE ANSWER

Great strategy... if you want to get yourself blacklisted by No ERC mortgage lenders!

These lenders get really annoyed at being used as surrogate bridging lenders. They don't offer no ERC mortgages so borrowers can redeem them in 6 months; despite what is taught on property training programs. Looks like I am myth busting again!

If you doubt that, just give them a call and layout your proposal to them and see how keen they are to lend.

If they catch any borrower intentionally using them as a bridging loan, they blacklist them; and usually the broker who submitted the case. The only reason blacklisting is not more prevalent is that these lenders IT systems are not yet sophisticated enough to flag up serial early redeemers.

Every mortgage you take out is shown on your credit file and it remains there for years. Crucially it also show when you redeemed it; so early redeemers stand out.

Will you get away with it once, almost certainly; a few times probably, but then you have the Sword of Damocles hanging over you. Any future shift towards greater intolerance of serial early redeemers and you are stuffed as far as getting mortgages go.

One other thing, using a mortgage for this purpose also involves you having to lie on the mortgage application form when you are asked how many years you want the mortgage term over. You say 25 years because if you said a few months you would get declined. In fact anything under a 5 year term will get declined.

Instead of using surrogate bridging, use the real thing. Learn enough about bridging to use it intelligently.

It is more costly, without doubt but only those who use it unintelligently bear the full cost of it. Those more adept with it will:

  • Use the speed of completion to negotiate the purchase price lower
  • When buying BMV, use bridgers that lend against the value, ignoring the purchase price, to minimise the deposit needed, so way less than 25% needed to put down
  • Use it to buy properties that are unmortgageable and thus available even more BMV.

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