HMO limited company mortgage

If you are thinking about purchasing an HMO property it might be more beneficial from a tax point of view to own it in the name of a limited company or potentially a special purpose vehicle. This could be beneficial for property investors who already have a wealth of experience on the market. 

Certain lenders will allow you to trade with an existing company. Others will require that you use a special purpose vehicle. This is a company that has been solely created to rent and hold properties.

You can apply for a mortgage on all types of property with a limited company including semi-commercial businesses. The maximum loans available are up to 80% LTV if you are purchasing a residential rental property.

Why Choose This Option?

Studies have shown that the number of landlords using a limited company to buy has grown tremendously. One research report revealed that two-thirds of landlords surveyed were planning on buying through a limited company. Although this used to be an option only favoured by those with large portfolios, research also suggests that landlords between one and ten homes are also exploring this possibility.

There has been an increase in interest since 2017 when tax relief for individual private landlords began to decline before diminishing completely in 2020. As such, buying through a limited company has become more financially viable.

This is coupled with the fact that HMOs generate high rental yields of 6.5%. Indeed, 20% of landlords now include HMO property as part of their portfolios. This highlights how beneficial an HMO can be when you find the right mortgage available for a typical limited company.

What Is The Situational Profile?

Applicants will either be trading limited companies or using special purpose vehicles. As mentioned, the SPV will be a company specifically for investment properties. It will complete no other trading activities and some lenders will require this to be the case.

Limited Liability Partnerships have also become more popular as a choice by which numerous partners now start their property portfolio.

What Is The General Lending Criteria?

Mortgages are accessible to purchase and remortgages are available up to 75% of the property value or purchase price. If there are no more than 8 letting rooms or 4 flats within the property then an 85% LTV is usually an option on the market.

The HMO mortgage products for trading limited companies include:

  • HMO-1, HMO – 3
  • HMO-7
  • HMO 8

For SPV limited companies options available are:

  • HMO-2
  • HMO-5-75
  • HMO-4-80
  • HMO-6-85

There are numerous options available including interest only or capital and interest repayments. Mortgages can also last up to thirty years. A limited company will need to provide evidence of deposit funds that are required as well as proof of income.

What Is The Applicant Profile?

Typically, an applicant for this type of mortgage must be a homeowner as well as an existing landlord. However, there may be lenders who do not make this a requirement.

It’s worth noting that there is no requirement on the size of the portfolio a landlord might hold either. However, a landlord must be employed or self-employed with an annual income of £25,000.

Alternatively, an applicant might also have a good pension income after retirement. It will also be necessary for an applicant to show that they have a relatively clean credit history. However, minor issues here can be overlooked.

As well as being a UK citizen, the applicant will need to have a history at a residential address for at least three years.

What Types Of Property Are Available?

As mentioned, there are numerous types of properties available. For instance, you can access properties with 20 letting rooms or 20 flats. Bedsits that exist in one freehold or leasehold are also a potential option.

Tenants can either be students or they may be working professionals and you can explore properties for purchase in England, Scotland and Wales. You will even find that property above commercial premises is considered.

The property may also have shared cooking and bathroom facilities or cooking facilities in the rooms themselves. Alternatively, you can apply for this type of mortgage with a mixed unit accommodation for flats, bedsits and studios.

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