HMO Mortgage Catch 22

by Readers Question

8:18 AM, 10th September 2015
About 3 years ago

HMO Mortgage Catch 22

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HMO Mortgage Catch 22

Basically, I own a home in Nottingham which I used to live in for 5-6 years. Whilst living there I had two lodgers living with me, but then due to work reasons I had to move out and away from the area. The two tenants were happy and wanted to stay so I decided to keep the house. (I’m also in negative equity by about £10-13K, so can’t sell the house anyway).catch 22

Since moving out, the two tenants have asked me if they can have two friends move in with them, plus from my side with only two tenants the house is running at a loss. The extra income would be good because I pay the bills for the tenants and I’ll be able to keep the house in top condition.

The house has always been up to HMO standard, but the problem is my current lender won’t allow HMO’s and I can’t get onto an HMO mortgage. My mortgage is only at 85% LTV and not the required 75% for a HMO mortgage.
I don’t have an extra £15K to put into the house, so I’m stuck.

Eventually, if nothing gives, I’ll probably have to sell the house at a massive loss and it would be a big shame because the tenants really like the house and really want to stay.

I know the HMO is in place to weed out bad landlords, but it’s such a pain for the good ones.

I’ve spoken to the Nottingham council but they were no help as they said they don’t do mortgages.

I’m sure I’m not the only one to be in this situation, so was wondering what other people have done?

Thanks for your help!

Alistair



Comments

Neil Patterson

8:23 AM, 10th September 2015
About 3 years ago

Hi Alistair,

With my professional hat on all I can say is that you are supposed to tell your lender, but you can't guarantee what their reaction will be.

An obvious solution would be to re-let the property on a single AST basis. Although that would mean losing your tenants, but that is better than potentially being forced to sell at a loss.

Mark Alefounder

10:30 AM, 10th September 2015
About 3 years ago

Hi Alistair.

I would suggest speaking to a broker like myself to see exactly what your current financial position is. There may be strategies that you haven't yet considered which could see you achieve what you want. I would be happy to have a chat to you and see if I can help in any way.

I can be contacted on mark@hdconsultants.net or on 07716647928.

Luke P

10:54 AM, 10th September 2015
About 3 years ago

Allow the current tenants to sub-let and up 'their' rent?

Just spit-balling...

Alistair Cooper

15:59 PM, 10th September 2015
About 3 years ago

Alistair
Many lenders allow four sharers on 1 AST whereas they are not so keen on 4 separate AST's
It would mean that all 4 tenants would be jointly and severally liable but as long as they are happy with that this may be a solution ?

Matt Wardman

16:21 PM, 10th September 2015
About 3 years ago

In Nottm you will be spendnig 1-2k on the fees and time for a 5 year HMO License if occupancy goes up to 3 or more, I believe.


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