Complex Buy-to-Let
The landlord may decide that £800,000 of that loan will be on a block of flats in a limited company providing a personal guarantee and the other £700,000 will be in his own name. There may be a mix of freehold and leasehold within that block of flats where some flats have been mortgaged off. There may be shared tenant services and a management company involved collecting ground rent which the director of the borrower has an interest in. The list goes on in terms of complexity so you find that this market is correspondingly much smaller than run of the mill deals. Similarly the highest yields to be made in the market are on HMOs and most lenders don’t touch them. It’s not overly complicated to do once you get your head around the risk issues and we have done a lot with no problems. You just need to know what you’re doing. HMOs can be far more lucrative for investors because you have multiple tenants. More and more people are getting into this type of investment because there’s a lot of money to be made if you get it right. There is a massive market for it especially in places like Manchester, Nottingham, Leeds – anywhere where there is a big university with a large campus. Lender appetite may be limited but there are lenders out there that want to lend on deals this complex, and Aldermore is one.
Distribution When thinking about how we help service the landlord from cradle to grave, distribution is key. There are people out there who want to develop their portfolios. Landlords might start off with one property, then buy another and a third. The time comes when he is experienced enough to want to buy another five all at the same time and may need advice to put it through a limited company. Often that investor will go back to the broker who has helped him in the first instance and the broker
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“There is an opportunity for brokers who have traditionally done vanilla buy-to-let and residential mortgages to get in on the more complex buy-to-let transactions”
finds he is stuck to know where to go for the more advanced buy-to-let finance. I think brokers in this situation have to raise their awareness of who’s out there in the market doing this type of lending. There is an opportunity for brokers who have traditionally done vanilla buy-to-let and residential mortgages to get in on the more complex buy- to-let transactions but it’s not
straightforward. What we often find is that brokers dealing on the vanilla side are busy managing the volume game, and rather than trying to work with lenders to understand the nuances and quirks on, for example, HMO lending, the easier thing to do is to refer it to someone who’ll do it for them. That perpetuates lenders going to specialist distributors like Mortgages For Business because they can unlock a market that the one man band won’t unlock because he doesn’t know who to speak to. If he does, his first experience of them might be a bad one if the pitch or presentation of the case is not quite right or the criteria doesn’t quite match. It can be done but it is hard work. So in honesty I think it makes things easier to work with specialists on a referral basis. Mortgages for Business and 3mc would certainly know what they’re doing and be able to help.
Progress Compared to last year the complex buy-to-let market is between 30% and 40% more active. There is huge demand from investors wanting to get into rental property. It is still a shadow of the sector’s position in 2007 and 2008 but the improvement from last year is encouraging. Although new lenders coming in have certainly contributed to this boost, I think it’s more to do with
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