Today Amy and Richard look at mortgage products for property investors and at what the biggest trends are in the property investment industry when it comes to financing. HMOs are, of course, very popular at the moment but do these need a commercial mortgage or are buy-to-let mortgages available for these kinds of properties?
Property Expert Series: Richard Ignatowicz From Mortgage Savers
- Introducing Richard Ignatowicz From Mortgage Savers
- An Introduction To Specialist Mortgages for Property Investors
- What Is Section 24 And What Does It Mean For Buy-To-Let?
- Do Landlords Need To Set Up A Buy To Let Limited Company?
- What Is A Special Purpose Vehicle (SPV)?
- How Should Landlords Go About Finding The Best Buy To Let Mortgage?
Specialised Mortgage Products
Amy: So, can you tell me, Richard, about some of the popular products which you’re finding for your clients at the moment? What are people are interested in? what are the trends in your industry?
Richard: The biggest trend at the moment, especially with the new tax regime coming about – people are looking for greater cash flow. So HMOs – houses of multiple occupation, multi-lets – they’re very, very popular at the moment. Obviously, the standard buy-to-lets are… HMOs are the most popular trend at the moment.
Amy: Can you tell me a little bit about specialised products? Perhaps if you’re looking at doing commercial mortgages or do you need a special type of mortgage if you want to buy an HMO property on finance?
Can you explain a little bit about how that works?
Richard: Sure, Amy. Typically, most – historically – investors have gone for commercial mortgages for HMOs. The drawback here is that the rates are higher. There are now a few lenders in the marketplace that will do buy-to-let, HMO mortgages and the rates are lower on that one. So it’s something that you need to talk to a knowledgeable broker about, to tell you the pros and cons with each different aspect, and then make a decision based on that.
Amy: Absolutely. And I would guess with there being so many products in the marketplace it’s crucial to use a broker such as yourself rather than sitting on Google and trying to find the right product. I mean, it must be a mine-field.
Richard: Yeah, sure. Everybody, when they phone me up says, ‘what’s the cheapest deal in the marketplace?’. There isn’t an answer to that because it depends on the term of the deal. A two-year deal, if they Google it, will be cheaper than say a five-year deal and a five-year deal might be more appropriate in the longer term especially when you come to re-mortgage and all the costs involved. So it’s not just a case of look at the headline rate it’s the bigger picture. Most investors think for the long term and there’s a rule at the moment… I would suggest that probably 90% of my inquiries are coming in with five year fixed rate deals.
Amy: Okay, that’s interesting.Ok, so can you tell us, Richard, a little bit more about commercial mortgages? I know we’ve touched on this already with HMOs. But I know this is becoming a more popular trend at the moment, so perhaps you can tell us a little bit more.
Richard: Yeah, commercial mortgages are, generally speaking, the high-street, sort of banks etc. They will value a property based more on the rental income – what we call multiples – as opposed to what we call a ‘bricks and mortar’ situation. So, you can actually get higher valuations based on commercial lending. The drawback is that the rates can be higher at the moment typically around about 5.5% to 6.5%. But the advantage for investors is the few lenders that we go to will do it on interest only rather than repayment which makes the payments that much even higher. Most investors are after cash flow, so the interest only is the solution for them.
Amy: Okay. Brilliant.