Many landlords would like to leverage their existing portfolio to make further investments as we enter into a period of opportunity as a result of the negative effects of Covid-19. Lending criteria, however, have made that more difficult to do, since stress tests have become more demanding, and more recently, across 2020, lending interest rates have been rising, despite the base rate being so low.
Here at ROOMS® we have developed a service based on our specialist management expertise which enables our landlords to increase their yield by converting their property into an HMO, and therefore pave the way to increased borrowing secured on the same asset.
Warning! You do not need to become an HMO landlord.
Since March the average rates on 60% and 80% loan to value BTL mortgages in both the two and five year fixed charts had been rising, despite the bank base rate remaining at an unprecedented flat level of 0.1%. This trend has slightly shifted with the 60% loan to value rates dipping back down again in November, underlining the banks continued drive to reduce its risk.
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BTL average rates |
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March 2020 |
July 2020 |
August 2020 |
September 2020 |
October 2020 |
November 2020 |
|
BTL two year fixed – 80% LTV |
3.56% |
3.18% |
3.51% |
3.98% |
3.98% |
4.35% |
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BTL two year fixed – 60% LTV |
1.89% |
2.28% |
2.35% |
2.45% |
2.52% |
1.99% |
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BTL five-year fixed – 80% LTV |
3.98% |
3.82% |
3.82% |
4.27% |
4.28% |
4.4% |
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BTL five-year fixed – 60% LTV |
2.31% |
2.65% |
2.73% |
2.80% |
2.91% |
2.25% |
Source: Moneyfacts.co.uk
We believe now is an excellent time for landlords to consider refinancing existing commitments using HMO specific products and using our service to take advantage of a low-risk and hassle-free option for leveraging their assets.
Beyond the bricks and mortar value of your asset, it is the rental yield which tends to restrict the loan to value which a bank’s lending represents. One way to significantly increase the rental income from property is to turn it into an HMO, however, this is a route that traditionally requires more involvement in tenant management, and more work in general.
ROOMS® has addressed this and has developed a service that enables our landlords to sit back and relax, receive their rent on time every month and have their properties maintained and protected at no cost to them. In fact the ROOMS® service makes being a landlord become as hands free as it can be.
This won’t work for everyone, but if you are looking for an easier life, increased profits and reduced risk with your property business, it is well worth considering.
Here is an example of how the strategy can work with us, where additional properties do not have to mean increasing your stress or worry in managing tenants, rent collection, property maintenance and rental voids. ROOMS® inherits this risk and guarantees each of these concerns is alleviated. Here’s how it can work…
Scenario 1
Investor A has a “single let” BTL property. It is a 3 bed semi in Bromley BR1. The property is valued at the average current asking price for a 3 bed house in Bromley at £565,833 (October 2020) and current asking rent of £1,885 pcm, which is the average rent for a single family let. If this was converted into an HMO, the rent that can be used to stress test the mortgage will be significantly higher, ensuring there is only the LTV ceiling to reach. Assuming a present mortgage of £300,000 and use of an 85% loan to value HMO mortgage product, the mortgage would now stand at £480,958, releasing equity of £180,958.
This landlord could now use £169,750 of this cash to buy 2 more £565,833 valued properties, to convert to use as HMO’s. This would be 15% deposit of £84,875 with a mortgage of £480,958 on each HMO property.
This landlord’s portfolio has now grown from 1 property with total value of £565,833 to 3 properties with a total value of £1,697,499. The risk has reduced as rental income will be from 3 properties rather than 1
The equity will have changed from £265.833 on the original house to £254,625 spread over the 3 properties.
In using ROOMS® this has a guaranteed rental income from 3 properties, eliminated void periods and removed the work of tenant and property management from the landlord.
We have used the simplest calculation which shows a pretty favourable outcome. To make the most profit while buying more property is a balancing act and will need full financial modelling, as going for the most equity release may not be your most profitable route. Call us for an initial chat to see if it’s worth booking a review with one of our recommended Mortgage Brokers who fully understand our business and this strategy.
How ROOMS® can help
ROOMS® has a history of forming close working relationships with agents, landlords and our professional clients; we deliver on our promises which are why many of our clients come to us via direct referrals. So how can ROOMS® mitigate the most important risks, inherent within the property rental market?
• ROOMS® guarantees rent to the landlord for a period of up to 60 months. Any contract length would take into account the landlord’s circumstances and intentions for the property
• In guaranteeing rental to the landlord, voids are eliminated, along with the costs and uncertainty of end of tenancies
• ROOMS® maintains, cleans and furnishes the property at our own expense. We set aside an annual budget and adhere to all current government regulations regarding health and safety
• At a future point in time the landlord may wish to have the property returned to them and instead of covering the cost of ‘fair wear and tear’ as is usual, ROOMS® ensures the property is handed back in the same state to which it was received. Again at ROOMS® own expense
Get in Touch.
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