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BTL Mortgage For First-time Buyer (Possible HMO)


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Hi! Just thought I'd post here to see if anyone had any advice for me. I have managed to save roughly £25k and I'm looking at buying a house to rent out as a source of passive income. My absolute ideal buy would be a multiple bedroom house (3-6 bedrooms), and I would like to let each room out individually. This may seem a bit ambitious, but there are houses available in certain locations for below £100k. The issue is that I am a first-time buyer...so this seems to be a problem for BTL mortgages. I am aware that there are quite a few lenders who are okay with first-time BTL landlords, but they are almost always strict on HMOs as I guess they are more risky! I was just wondering if anyone had any advice, or if there are any Brokers that people recommend? I know I could abandon the multiple bedroom idea and have a 'vanilla' let (1-2 bedroom), but I really want to explore every possibility of the HMO option first before giving up! Also, I would plan on using a reputable agency to manage the letting (it does cut the profit, but would still be more profitable than a single let I think). Thanks!

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There may be 1 or 2 options for a FTB HMO, but it's difficult to know for sure without knowing your circumstances fully. You should give careful consideration to going down this route, as generally you can expect a poorer quality tenant (students etc.) - particularly for lower valued properties - and your property may not be looked after as well. Additionally, you will have to meet your local authority's licencing requirements, and incur additional costs.

 

Rental yields should prove stronger than for a 'vanilla' let, but you will need to weigh this up with the negatives of HMO. Furterhmore, you should consider the limited options for refinancing a HMO property; criteria will be more restrictive and rates may not be as competitive.

 

It may help to have a parent on the mortgage, particularly if they are landlords themselves, but depending on their own circumstances, income, outgoings, credit history etc, it is difficult to say for sure.

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Thanks for the advice. Just re the parent option - is there much risk involved for a joint applicant on a BTL mortgage? I don't want to put my parents under unnecessary financial strain - is it as simple as just having an additional name on the mortgage to provide reassurance to the lender that we have some experience on hand? I believe my parents have been landlords before and are secure financially.

Thanks again

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The main risk is that they would be jointly liable for the mortgage payments so if you were unable to make the payments yourself, during a rental void period for example, it would fall upon them to meet them. Failure to keep up the payments would damage their credit rating as well as your own.

 

It may impact them in the future if they were to apply for a mortgage of their own, be it for residential or BTL, but this would be less of a concern.

 

Many BTL lenders impose minimum income requirements and age restrictions so this would apply to both you and your parents if you were to apply jointly.

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I'm a student HMO landlord and mortgage adviser. :-) I love my HMOs as I want profit now and a decent cash flow. Fewer lenders are available and the rates are higher, but in my personal experience its made up for by better yields. HMO do require more management, but I also prefer them to normal lets as with students I can predict when they move in or out. So I'm lucky in that I can predict my cash flow and know I have summer to carry out any larger disruptive maintenance jobs. But you need houses of a high standard so they let out easily as void would be very costly, especially if you had a lot of maintenance to deal with on top.

 

For a FTB HMO you will need 20% Deposit, no minimum income. You could also do it through a LTD company if that made sense for you.

 

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Thanks very much guys!

Mortgage_tom would you recommend any Brokers/lenders in particular?

Also one question re licensable vs unlicensable HMOs. I was on the phone to a lender and they said maximum LTV for me as a FTL for a licensable HMO would be 65%, but for a ‘standard’ non licensable HMO BTL it would be 75%. Are there clear rules about what defines a licensable HMO? As I read somewhere that if the property is less than three storeys it usually does not need the same HMO licence. Basically I’d like some advice on whether I should abandon looking at certain HMOs hased on number of bedrooms/number of storeys? How do I know for sure that a property is not a ‘licensable’ HMO without having it put through all of the lender’s checks etc?

 

Thanks!

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Avoid licensed HMOs and look at multi lets. That will mean maximum 2 storeys and 5 beds, but it will be easier. As you're not an experienced landlord or home owner, you may struggle either way.

Definitely speak to a decent mortgage advisor who will be able to tell you what's possible. There's Simon Allen who posts on here who is well regarded (I haven't used) or I'd personally recommend Regents Court Financial who took me through a multi let mortgage, although the property didn't go through in the end, so that's still one for another day

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