Complex buy to let mortgages

Stepping onto the buy to let ladder can be a daunting prospect. It’s not like buying your own home, which can be complicated enough.  And for many people when building a buy to let property portfolio, there comes a point when your needs begin to get too complex for some lenders to manage.

Read on to find out about some of the challenges (or opportunities as we see them) that as a landlord you may want to consider when diversifying or growing your buy to let ambition.

Buying buy to let as a limited company

Buying a buy to let property through a limited company could save you money. Changes to the tax rules mean landlords have to pay tax on the majority of their rental income and are no longer able to deduct the cost of their mortgage interest. This means those higher rate taxpayers will pay considerably more tax and may not be able to make a profit from their buy to let portfolio. However, landlords who form Limited Companies are exempt from these rules and continue to pay corporation tax on their profits. Setting up a company for your buy to let property is complex and you should take advice from a qualified professional before you go ahead.

Types of tenancy

Houses in Multiple Occupancy (HMOs)

  • A HMO in England and Wales has at least 3 tenants living in it in forming more than one household and who share toilet, bathroom and kitchen facilities.
  • A HMO in Scotland has at least 3 tenants from 3 or more families with basic shared amenities.

Although in the buy to let market it is not unusual for landlords to own HMOs particularly in university towns and cities where students sharing houses are common, many lenders do not lend on these types of properties due to their complexity. The value of the loan required is often over the maximum lending level and income can be difficult to assess due to the number of parties involved. 

Multi-unit freehold properties

Not to be confused with multi-let properties, which are similar to HMOs, multi-unit freehold properties are several individual homes on a single freehold title such as blocks of flats. Three blocks of flats could be purpose built or converted from larger houses, but each unit will have its' own tenancy agreement and separate entrances for each household. There may be some shared spaces such as communal gardens or hallways but the space within each unit will be private and only the residents will have access to it. Multi-unit freehold properties are popular with professional landlords but it might be difficult to get a mortgage on these, due to complexities that are similar to mortgages on HMO properties. 

Portfolio size

As your portfolio grows your mortgage needs will become more complicated. You may find it more difficult to secure lending for mortgages reaching the end of their initial term or the size of your portfolio may exceed the maximum allowed for many lenders.

Assessing your income

It may not be your buy to let property that throws up some challenges but your income. If you are self-employed, contracting or freelancing or are operating as a limited company, many banks and high-street lenders will find it difficult to assess your income because you aren’t working a 9 to 5 job, even if your earnings are high. Proving your income and affordability is possible – you may need to provide more documentation than usual – and it should not put you off applying for a buy to let mortgage.

Corporate lets

Letting to a large blue-chip or multinational can be a landlord’s dream. With a company’s backing it is possible to command a premium for these types of properties and tenants should never in theory default on the rent. However, there are a number of criteria required to secure a mortgage on a corporate let. Tenancy agreements tend to favour the company and valuations may be high.

 

For more information:

Read our 10 top tips for first time landlords

Read our top tips for expanding your portfolio

Find out more about our buy to let products

  

Subject to status. If you fail to keep up with payments on your mortgage a ‘receiver of rent’ may be appointed and/or your rental property may be repossessed.