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.
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Complex buy-to-let mortgages

For many people when building a buy-to-let property portfolio, there comes a point when your needs begin to get too complex for mainstream lenders to manage. It can be incredibly stressful particularly if you have mortgages that are coming to the end of their fixed rate term and you want to remortgage to get a better deal.

Read on to find out about some of the challenges (or opportunities as we see them) that as a landlord you need 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 can save you money. Changes to the tax rules mean landlords will eventually have to pay tax on the majority of their rental income and will not be able to deduct the cost of their mortgage interest. This means those higher-rate tax payers 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 will be exempt from the new rules and will 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, but if you decide this is the way forward then Aldermore’s expert mortgage advisers can help you get a mortgage.

Specialist criteria applies and we will undertake full due diligence as part of our assessment process. We will always require a personal guarantee from any director of the company and from any shareholder with a 25% or greater shareholding. 

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 mainstream 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 can be difficult to get a mortgage from a mainstream lender 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 9-5 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 is 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 which could put many mainstream lenders off.

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.

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