A guide to commercial mortgages for complex buy-to-let

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Investors purchase what is known as complex buy-to-let property because they can often get better rental yields than for its

standard equivalent.

What is complex buy-to-let?

Standard buy-to-let property, often referred to as ‘vanilla’ property, is one- to three-bedroom houses and flats. These are normally rented to a single tenant and most lenders have off-the-shelf commercial mortgage products to finance their purchase.

Complex buy-to-let properties include houses in multiple occupation, multi-unit freehold blocks and semi-commercial property. Investors may find that they need a specialist lender for a commercial mortgage for their purchase. Ascot Mortgages is able to find commercial mortgage deals for complex buy-to-let property in situations like this.

Houses in multiple occupancy

Houses in multiple occupancy (HMO) are defined as property that is rented out to three or more people who are not members of the same household or family. They share facilities such as the bathroom and kitchen.

A large HMO is rented to at least five people not in the same household and is three storeys or more high, with tenants sharing a bathroom, toilet or kitchen.

An HMO must be licenced from the local council. A licence is granted if the house is judged suitable for the number of tenants living in it. The manager of the house (the landlord) or his/her agent must be a “fit and proper” person with no criminal record or history of breaching the landlord’s code of practice. As well as this, the property must have safety certificates for all electrical and gas appliances.

The commercial mortgage lender will probably insist that the HMO is licensed as one of the mortgage conditions. HMOs are usually more complicated to administer as there will be several tenants each responsible for paying their own rent. The total value of rents should be higher than the rent paid by a single tenant. There are agencies that will administer an HMO on behalf of the landlord for a fee.

Multi-unit freehold block (MUFB)

An MUFB is a building that has multiple residential units that are separate and independent, but have a single freehold title. These include purpose-built blocks of flats and large houses converted into separate flats. They normally have communal areas such as hallways and gardens.

The advantage of MUSBs is that if one tenant leaves, there will still be income from the other tenants. Rental yields are generally higher than standard buy-to-let properties as well.

Interest rates on commercial mortgages for MUFBs are usually higher than vanilla buy-to-let mortgages.

Semi-commercial property

Semi-commercial or mixed-use property is one that has a residential area and an area rented to commercial tenants as business premises. Typically, these are shops with flats above them and pubs that have a flat where the landlord lives. Purchasers do not pay the extra 3% stamp duty for these properties.

Commercial mortgage finance is available for all types of complex buy-to-let properties. Talk to Ascot Mortgages about the best way to fund your property deals.

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*Privacy Notice - Any information provided will be treated with confidentiality and will only be accessible within Ascot Mortgages