HMO mortgages out of favour?

by Property 118

10:06 AM, 10th July 2020
About a month ago

HMO mortgages out of favour?

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HMO mortgages out of favour?

I’m nearing the end of my 20 year term with Paragon on an HMO. They would only speak to me within the last 3 months of the term and have now said I can apply for an increase in term of up to 10 years. When I saw their rates I was surprised how high they are – eg 3.65% for a 2-year fix with a 0.5% fee; or 4.0% for a 5-year fix with a 1.0% fee both at a maximum of 75% LTV.

I asked my IFA to come up with something better and they’ve come back and said I should try and get the Paragon extended term, as the market rates are so high. Other companies will lend but the arrangement fees are huge.

This is a dramatic increase to the rates from not-so-long ago. Last December I remortgaged an HMO with The Mortgage Works at base + 1.69% with a £1,995 fee. Now TMW have no HMO rates on offer.

I guess the reason must be the perceived Covid-19 risk of several “households” under one roof.

Is anyone else having trouble or can anyone else find anything better?

Thanks

Neil



Comments

Neil Patterson

11:08 AM, 10th July 2020
About a month ago

HMOs normally offer a good risk profile to lenders in terms of affordability with their often higher yields.

However, you may be correct with risk in demand and the ability to evict during the lockdown along with the constant regulation and selective licensing attacks.

Smartermind

11:58 AM, 10th July 2020
About a month ago

If you haven't already done so, apply for a bounce back loan. It is interest and repayment free in the first year and only 2.5% for five years after. Plus it can be repaid at any time without penalty. Of course it won't cover the whole of your HMO mortgage, but every little bit helps!

Art Dobson

17:31 PM, 10th July 2020
About a month ago

Reply to the comment left by Smartermind at 10/07/2020 - 11:58
Watch out with that one, I feel the bounce back loans are too good to be true, expect hmrc to cast an eye over all your assets in greater detail.

Dancinglandlord

22:10 PM, 10th July 2020
About a month ago

Reply to the comment left by Smartermind at 10/07/2020 - 11:58
Ii've heard that your credit rating will be hit if you apply for a bounce back loan. Beware

Paul Shears

8:43 AM, 11th July 2020
About a month ago

Far easier said than done in some cases.
Yes we all know that some landlords have obtained the loan without any problem.
But that has not been my experience!
Initial application with my existing bank, Santander, dragged on and on with multiple layers of continuing corporate incompetence.
No judgement of any kind throughout the corporate process.
Multiple requests to an individual completely unrelated to my business and who Santander know perfectly well could not possibly have answered any of their questions, using my Email address from the bank, caused me to give up on Santander but they never noticed and continued to ask for more information.
Eventually my loan was rejected but not with regard to any information that had or had not been provided but rather on a completely irrelevant detail despite my credit rating being 999.
Having given up on Santander, I started with HSBC 13 weeks ago.
The contact numbers that they give you in letters and Emails are wrong and the staff on those numbers will readily admit this!
You will be given another number to ring by the staff on the incorrectly contacted help desk.
After weeks of trying to get through on the unpublished number given to me by the incorrect help desk, I finally got to speak to someone yesterday.
It only took 50 minutes.
She told me that my loan was never actually going to go through because I had not proven my address. This is despite the fact that I did this in response to a letter that I received with a code number in it, weeks ago.
No explanation of how this could have happened from the help desk but it's obvious that, just like Santander, no progress chasing is ever done.
I have now been assured at my loan is most definitely fully approved.
However it is not possible to give an estimate of when the money might actually arrive if it ever does.
That detail is outside the remit of the HSBC helpdesk bounce back loan "specialists" that I spoke to yesterday.
This whole government bounce back loan scheme has been handled in a totally irresponsible way by both the government and at least two of the financial institutions that they have dumped the problem on.

Dancinglandlord

21:46 PM, 13th July 2020
About a month ago

Sounds like a bad option to me, unless you've incorporated, the tax you'll pay on the extra interest rates = reduced but still taxable profit will make it unviable compared to selling. And incorporation is unviable if you need to draw your income.
A few of us will face these challenges as our mortgages come full term. We lived in lucky times for a decade or so, worked hard, improved standards in the rental sector and then things started to get tighter - and tighter. Our pensions are invested in our buying decisions, our development decisions and our hard work. We do actually deserve to reap the benefits of the better conditions and service that tenants now have. And for lifetimes of keeping up with legislation, bureaucracy and re-investment, we should have earned the gain in our investments. The business case for pulling out of the industry as good mortgage terms end, eco investment is being laid at our door, interest rates are low and yet we continue to be highly taxed and cannot borrow at market rates, is compelling. The forces on the market have not repealed the bizarre taxation on mortgage interest, nor CGT. The pandemic is another force squeezing possible yields and growth. We can hope that the tide will turn, that mortgagors will hold on to their investments at reasonable interest rates to keep their books going and keep properties available to let. Who knows where the power now lies. I'm tempted to sell enough to pay off my loans and not be dependent on the banking sector. I can never be free of the fiscal state however.


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