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What qualifies a property as an HMO?

HMOs are a typical point where a clash of opinions occurs.

HMOs get valued as commercial properties, but HMOs converted from what was an ordinary residential property, rather than a commercial to residential conversion such as a pub or offices are NOT a commercial property, but a residential property temporarily being used for a commercial purpose.

These are the main differences between actual commercial properties and residential properties converted to HMO.

Commercial HMO
  • Leases are long, up to 20 years
  • Leases are rarely longer than 12 month ASTs
  • Lenders take comfort from the lease providing an increased likelihood that the loan will continue to be serviced
  • Sometimes licenses are used, rather than a lease

 

  • Leases are often fully repairing, meaning the tenant is responsible for the upkeep
  • ASTs give lenders less comfort in continued serviceability of the loan
  • Leases have built in break clauses and rent reviews
  • The landlord is always...
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Will a poor credit rating limit your investment potential?

buy to let Dec 19, 2016

THE QUESTION

I'm currently looking at purchasing a house for £70k and I have funds to purchase outright with no mortgage. I have a potential tenant ready to rent at £550 pcm returning approximately 9%

My credit rating means I can't place a deposit and get a buy-to-let mortgage, hence buying outright. I’d like to take £60k out of the £70k paid back out for future investments.

Would the banks look at me completely different having a £70k asset or will they still view me as a poor risk and refuse to lend?

THE ANSWER

If I understand you correctly, you have previously been declined for a BTL mortgage because of your poor credit history. If that is correct, owing an unencumbered property will make absolutely no difference to that. Your credit history doesn’t change because you buy a property for cash.

Mortgage lenders turn down people with poor credit histories because that history identifies them as someone who has proved less able to maintain...

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How to improve the surveyor's valuation

THE QUESTION

I’m looking to refinance a property as soon as possible to release cash tied up.

Similar properties on the same street sell for £95k and I purchased mine at £75k and spent about £5-6k on the refurbishment (painting throughout, new carpets, new kitchen units, new electrical wiring, new toilet and basin).

However, I’ve just heard no one took the requested before photos so I’ve got no photographic proof of what it looked like pre-refurb (and I can’t show off the refurb either!)

Will this present a problem if I try to re-value the property to a higher amount?

THE ANSWER

It helps to understand the mindset of the surveyor who will be visiting your property and that will be very much to value any recently bought property at the purchase price paid, unless given compelling reasons not to.

Such as:

  • Planning permission gained
  • Structural alterations that increase the footprint i.e. an extension
  • A cosmetic internal refurb

The degree...

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BTL or Commercial Mortgage?

THE QUESTION

I'm looking at a HMO for my next project but would like to put this one into a new limited company. How easy\difficult is to get a mortgage on a limited company without any trading history

What are the perils and pitfalls of using brand new limited companies for lending? Is it possible?

THE ANSWER

Mainstream BTL lenders do not lend to limited companies or SPVs regardless of how young or old they are. If you want a 'vanilla' BTL mortgage you have to apply as an individual.

If you want to borrow in the name of a limited company, then you will need to go to commercial lenders, or what I would refer to as specialist lenders; those on the periphery of BTL lending.

Trading history, accounts etc. are less relevant if the property you are putting up as security has a provable, consistent income that reassures the lender that you have the ability to service the mortgage payments. So, if you can show a fully let property, with ASTs as the proof of...

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How to increase your property investment faster

buy to let Nov 21, 2016

THE QUESTION

In various interviews and strategies there is a fairly heavy reliance on buying BMV and recycling your cash quickly to multiply your portfolio and increase cash flow. This doesn't only seem to be theory, but what lots of investors are actually doing.

How is this achieved? Are people buying with cash and then able to get a BTL mortgage as soon as they like? 

I guess another option is that some are using bridging until they've done the work and then getting the mortgage at the new higher value?

What are the options for those who simply want to use standard BTL mortgages? Would there be many with no ERC? If you use these to remortgage after 6 months after adding value, will the banks start to get annoyed? If that's the case is really the only option to wait out the 2 years and remortgage then? It seems like that will slow things down quite dramatically.

THE ANSWER

Building a portfolio traditionally can be a very slow process. Buy a property, put 25% deposit down, wait...

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HMO or B&B?

Updated HMOs information here

THE QUESTION

I got an HMO which meets full HMO regulations. I'm thinking of making it into a B&B which will certainly generate more income.

I'm going to remortgage ASAP. How do I prove the income as a B&B? Do I need to wait for one year?

THE ANSWER

If you are looking to remortgage, commercial lenders will view an HMO and a B&B completely differently.

With an HMO you have ASTs or licences, this gives the lender comfort of a continuity of income with which to service the mortgage.

With short-term letting (B&B, hotel) you could be full one week, empty the next, so no continuity of income for a lender to assess your ability to service the mortgage.

This means historical occupancy rates are critical to a lender to analyse your ability to service the mortgage. As an absolute minimum, the lender will want several months proof of occupancy percentages, but more than likely will want at least one year plus.

Lenders also prefer relevant...

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Get a good valuation

THE QUESTION

Any tips on getting the highest valuation for a property you want to mortgage?

THE ANSWER

It helps to know that any surveyor's mindset when asked to value a property purchased a few months previously will be to value it at the purchase price paid, unless given compelling reasons not to.

When they arrive at the property they will be focused on the purchase price paid; your success in getting the highest valuation will be determined by how much you are able to shift their focus.  Here is what I teach on my workshop on this subject.

  • You need a works schedule, but that in itself is not enough; it needs to be as detailed as you can possibly make it, think of what a Quantity Surveyor would produce. It also needs to be uncosted.
  • You need to provide before and during photos.  The surveyor has to be given visual evidence of the scale of the work you have undertaken.
  • You have to 'dress' the property. If it is already tenanted it will have that lived in look, but if it...
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Commercial loan v. BTL mortgage

buy to let Oct 30, 2016

THE QUESTION

What the difference is between a commercial loan and a regular BTL mortgage is and what are the pros and cons?

THE ANSWER

BTL mortgages are usually where you start, commercial mortgages are usually where you end up. If you are just starting BTL lenders are your natural choice. Generically, the differences are as below.

BTL lenders have many tick box criteria, commercial have many less.

BTL lenders ideal borrower is:

  • Employed
  • Earning £25k+ pa
  • Owns only a few properties
  • Is willing and able to put down a 25% deposit which is their own (not anyone else's) cash and happy to leave it in the deal.

Their ideal property is a single let, max 5 bedrooms. They are happy to lend to first time landlords, but almost none lend to first time borrowers.

Commercial lenders are happy to lend to full-time landlords, but not exclusively so.

  • They don’t lend to first time landlords, minimum 12 months letting experience is required.
  • They lend on all the properties BTL lenders...
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New property, good tenants – but no AST

buy to let Oct 20, 2016

THE QUESTION

I've purchased a property (exchanged contracts already) that is currently let to a charity.

The charity, as I understand it, then put young adults who have recently come out of care into the property (either on a sublet or license I'm not sure at this stage).  It’s on a corporate tenancy agreement (i.e. just a common law tenancy not an AST).

Are there any lenders that allow this? Most want ASTs and the ones that I can find that allow corporate lets seem only to allow the company to then place one of their own employees in the property.

I did want to purchase this with a mortgage, but looks like I will have to use cash. I can give the charity notice a couple of months after completion so that I can get a buy-to-let mortgage, but it seems a shame to get rid of a tenant that is likely to be there for a long time so I could do with finding a mortgage lender that will allow all of the above.

THE ANSWER

There’s no need to get rid of a good tenant,...

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‘My cash is stuck in two BTL properties’

bridging finance Oct 10, 2016

THE QUESTION

I own two properties outright – both have tenants and yield 9.5% of their £85K (each) value. I've owned them for four months they have been let for two months. I have no proof of income as I've just started doing this full time. Can I BTL remortgage these at a competitive rate anywhere, or do I need to wait six months and go through TMW?

THE ANSWER

The wider issue here is that you can buy properties for cash, with all the advantages that brings, but you don’t want to then wait six months plus before you can repeat the process. If the mortgage lenders that give you the best rates require that you own the properties for six months before you can apply for a mortgage, you are missing out on potentially lucrative deals because your cash is trapped in these properties.

You have a defined chunk of cash and it is big enough to buy properties outright, as you have bought two worth £85k each (I’m not sure if you paid £85k or if, now you have...

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