The ABC Finance Limited HMO mortgage calculator
Before looking to take out an HMO mortgage, we would advise you to check that the loan is affordable both when the property is tenanted and also if there are rental voids. This tool will work out the anticipated monthly mortgage payment on both an interest only and capital repayment basis.
Typical products are:
- Sole name existing landlord (60% LTV): 1.44%
- Sole name first-time landlord (75% LTV): 2.5%
- Limited company (75% LTV): 3.25%
- Large/commercial HMO (75% LTV): 3.75%
Lenders have a vast range of LTV (Loan to Value) options and rates available depending on a client’s individual circumstances. To find a product that suits you, check out our HMO mortgage comparison page.
How much can I borrow against an HMO?
HMO mortgages start from around £25,000 with no real maximum loan, but this depends on several factors. When looking to take out this type of funding, lenders tend to use two different checks to confirm lending levels.
Firstly, a lender will check the LTV. This is worked out by dividing the loan amount by the value of the property and multiplying it by 100, expressed as a percentage. The maximum LTV ratio usually depends on the client profile such as adverse credit and a history of letting property.
Standard or vanilla HMO mortgage lenders tend to cap the loan at an 80% LTV. An example of this would be the purchase of a property for £100,000, a loan of £80,000 would be permitted.
Specialist HMO lenders finance up to 85% of the property value if the applicant has a track record in letting property. For instance, someone who already owns a couple of standard buy-to-lets. If you have little to no lettings experience, the loan may be capped at 80% LTV.
In general, the higher the LTV, the higher the rate you can expect to pay. To obtain the best rates you should keep the LTV at 75% or under. At ABC Finance Ltd, some of our clients prefer to keep LTV low to save on interest, whereas some prefer to maximise borrowing to keep deposits to a minimum.
In addition to calculating the loan to value, lenders will look at the rental income and affordability. Some rule that the rental income must be more than the rent by a set figure, e.g. the monthly rent must be 140% of the interest only mortgage payment.
There are also many other factors they will look at when assessing applications. Our experts are always on hand to run through these figures with you.
What terms are available for HMO mortgages?
Typically, lenders who finance HMO mortgages allow terms from 5 – 30 years depending on the age of the applicant. They usually like the loan to end before the oldest applicant’s 85th Birthday. Hhowever, longer terms are available.
Typically, 20 – 25 years is standard for a property purchase. If remortgaging, some clients keep the term the same as with their current lender, while some extend the term to the maximum available.
Repayment or interest only?
This usually comes down to personal choice. Here is a brief overview of the two options:
- Capital Repayment: With each monthly payment, both interest and capital are paid, meaning the loan gradually reduces.
- Interest Only: With each monthly payment, only the interest is paid meaning the loan balance stays the same for the mortgage term.
Both have advantages and disadvantages. Repayment mortgages lead to the loan being repaid at the end of the term but, as a result, the monthly payments are higher. With interest only, the monthly payments are lower but at the end of the term, the loan is still due in full.
Some investors opt for interest only to reduce monthly payments initially. When the loan term ends, they sell the property to repay the loan. The aim with this approach is to make a profit if the property value increases.
To speak with an unbiased advisor and receive a free quote tailored to you, enquire online now or call us on 01922 620008.