Buy to Let

Guide to Buy to Let

Limited company or direct ownership

If you are a landlord with fewer than ten properties, the majority of people will advise you to stick with your current ownership vehicle, at least for your current properties. The primary reason for this is that the cost of changing ownership outweighs any benefits. Because we are all unique individuals, I recommend consulting with an expert in this field if you are thinking about moving your properties. A quick Google search will turn up a slew of companies that specialise in this process.

If you are just getting started or buying more properties, it is worthwhile looking into the use of a limited company. To meet mortgage lender requirements, the limited company should be set up as a Special Purpose Vehicle. There are a plethora of articles from accounting firms and solicitors that contain a wealth of information.

I'd be delighted to collaborate with you to bring this all together. Starting with a blank piece of paper and working your way up to a property mogul or wherever you want to be.

Portfolio manager

When you buy four properties to let with a mortgage, you are a portfolio manager. Then additional restrictions and disclosures are required. Some lenders will limit the maximum number of mortgages or the total amount of borrowing you can have with them. Some may go so far as to limit the total number of properties you can have mortgages on, even if they aren't with them. When applying for a mortgage, lenders will look at your entire portfolio, not just the property for which you are seeking financing.

Your entire portfolio, as well as your total lending. Lenders prefer a loan-to-value ratio of 65 per cent to 75 per cent for the entire portfolio. The portfolio's rental income must cover all mortgage interest while leaving a surplus. Lenders calculate this differently – some want the entire thing to wash at 125 per cent assuming a rate of 5.5 per cent, others at 145 per cent assuming a rate of 5.5 per cent, and others use a bespoke calculation. Some lenders will accept your own portfolio spreadsheet, while others require a specific format.

Surprisingly, if the properties are not mortgaged, they are excluded from this category. So you could own hundreds of properties outright and not be considered a portfolio manager if you only had three or fewer mortgages.

Houses in multiple occupation

To be classified as an HMO, a property must be a residential property shared by three or more people from two or more households. A household can be defined as a single person or as members of the same family who live together. The tenants will share common areas such as a kitchen and a bathroom.

A large HMO is a property that houses 5 or more tenants from more than one household.

Finally, for the property to be considered an HMO, the occupants must pay rent and list the property as their primary residence.

One of the main drivers behind the growing number of landlords looking to HMO properties to diversify and grow their portfolios, particularly in university towns and smaller cities, is the potential for higher rental yields. The relaxation of change of use rules presents a huge opportunity for property investors to convert vacant high street units to homes.

However, an HMO is not the best option for all landlords; it will depend on the landlord's risk tolerance, the area in which they want to invest, and their management plans.

Let to Buy

Just a tidbit of information. When you let your current residential property in order to purchase a new residential property, you are actually doing a let to buy rather than a buy to let. For years, I've been labelling myself incorrectly.

The government's website contains comprehensive information on rights and regulations.