Types of property finance for investors

People looking to invest in property often have a very significantly different set of criteria when selecting property finance.

This is a highly specialised domain and specialist help from a qualified mortgage broker might be advisable.

Here we will be examining just two particular themes of this diverse marketplace – the HMO finance/bridging finance mortgage options.

HMO and finance

HMO stands for House in Multiple Occupation. Such properties are typically owned by a landlord or sometimes a collective, with the internals having been converted into a number of separately rentable accommodation units. Some HMO properties may have been purposely-built as such.

The regulations covering HMO properties are complicated and if you are unfamiliar with them, it would be advisable to study the government’s official information carefully.

Finding a mortgage provider for an HMO property is not necessarily straightforward and why using a specialist mortgage broker who can individually tailor a solution may make sense. In many cases, the application process and many of the variables are bespoke, meaning they are subject to discussion and agreement in the context of a specific application.

That means it can be difficult to provide specific factual information in advance but the following general points might, in many cases, be accurate:

• significant numbers of conventional mortgage providers will not lend on HMO properties. They may see it as not being their particular area of business expertise;

• those that do might typically only offer a maximum loan to value advance of between 65-75%. Some may go as high as 80% and in some very exceptional cases, possibly to 85% but those situations are rare;

• it can be particularly difficult and you may need very specialist assistance if you are seeking an HMO mortgage without having had any previous experience of managing an HMO Property. Once again, the help of a HMO mortgage broker is likely to be essential here;

• the ease of access to your finance may be dependent upon whether or not the property requires you to hold a formal local authority licence and if they do, whether you already have it.

The good news is these mortgages are available but expect to need a little more help in order to find them than might be the case with standard residential or BTL mortgages.

Bridging finance

There may be many reasons why, as a property investor, you will occasionally need some form of bridging finance. This could be simply due to the break in which selling and buying property can often cause. Bridging Loans are a common way to temporarily fix this gap and help you to continue with your property investing.

One obvious example is where you need to move quickly to secure an opportunity but there is unlikely to be sufficient time to go through the full mortgage application process before the deal will be snapped up by somebody else. A property auction might be a good illustration of such.

Although perhaps more commonly associated with residential property buying, there is no reason why you should not consider bridging finance when considering investment property purchases as well. The rates and sums available from lenders may vary considerably and again, a mortgage consultant with their finger on the pulse of the marketplace might be able to find you options that are not visible in the general public domain.

Typically, some form of maximum loan-to-value thinking will apply for bridging finance and the cost will need to be looked at closely and factored into your overall business plan and your ROI for the property concerned.

Even so, if you need to bridge between paying out for the property and your full mortgage or other funding application being approved, this might be a very viable route.