OpenRent helps thousands of landlords a month find tenants for their properties, and from time to time we are asked for advice on mortgages – by buy to let pros and “accidental” landlords alike. We chatted through some common mortgage dilemmas with Matthew Naylor of whole of market broker Ascot Mortgages.
I’m an accidental landlord, renting my former home as I’ve been unable to sell it. I didn’t inform our mortgage lender when my tenant moved in. Do I need to?
Speak to your lender ASAP. Currently, you are in breach of your mortgage conditions and should your lender find out via an alternative source that you’re renting the property they could take action – the worst being that they “call in” the mortgage, meaning you have to repay the loan immediately. In most cases a lender will give you “consent to let” if there is a valid reason as to why your circumstances have changed.
I’ve found a great doer upper. But it’s in a real state. Will I be able to get a mortgage on it?
In properties where there is no functional kitchen and bathroom or an electricity supply, there are no lenders that will consider the property for a mortgage. For mortgage finance to be available, a property must be in an immediately habitable condition. If any of the above apply, then you will require bridging finance until you have carried out some essential improvements. You can bridge for the purchase and a percentage of the works required and then repay the bridge by remortgaging the property once it is in a habitable state. You will need a deposit of around 30 percent plus 30-50 percent of the cost of works in most cases.
I’ve heard about buy to let portfolio mortgages. I own three properties. Could a portfolio mortgage be right for me?
Possibly. We would need to research the market and ensure that a portfolio mortgage was the right advice rather than singular buy-to-let mortgage on each property. This always needs to be considered on an individual basis. You only need two properties to do a portfolio mortgage however normally they would need to be worth at least £75,000 each. If you are buying a number of properties at the same time, then a portfolio mortgage would almost certainly make sense.
The benefit of a portfolio mortgage is that you can group together a number of properties under one mortgage, reducing the fees you will pay. The arrangement fee is on average is around 1.5 percent and it is not uncommon to pay as much as 2.5 percent for a buy to let mortgage. Taking out a portfolio mortgage also means that you don’t need to worry about a whole roster of loans coming to the end of their terms at different times.
I’m thinking about investing in a small block of purpose built apartments. There’s a retail unit on the ground floor. How does this impact on my borrowing?
If you’re looking to buy the entire block including the ground floor unit then a commercial mortgage would be required. Even if you’re not looking to purchase the retail unit as well, its presence will restrict your BTL options. I would advise speaking to your mortgage broker and discussing the position in full. What is the commercial unit being used for? What is its classification of use?
I’ve always owned professional lets, but I’m considering taking on a student property. Do lenders view HMOs differently?
Yes. As students tend to fill a property at the same point the lender (whether it be BTL or commercial depending on the number of students) will need all tenants to be on one tenancy agreement. It is possible to have a professional HMO too, where the property is let on separate agreements to a number of working tenants on a room-by-room basis.