The Student HMO Investment Project
20% Deposit HMO: A Limited Company Journey
Your property may be repossessed if you do not keep up repayments on your mortgage.
A fee of up to £495 per mortgage may be charged depending on individual circumstances.
The Financial Conduct Authority does not regulate most Buy to Let Mortgages.
There is no guarantee that it will be possible to arrange continuous letting of the property, nor that rental income will be sufficient to meet the cost of the mortgage.
The information contained within was correct at the time of publication but is subject to change.
7th March 2025
Exciting news! My client is about to take possession of their newest investment: a student HMO in vibrant Exeter. This deal, however, came with a twist – a 20% deposit. As a seasoned property investor, they knew the challenge. If you've followed my BTL advice, you know I usually advocate for a 25% deposit. But this opportunity was too good to pass up. This case study is a real-world look at navigating the mortgage landscape with less capital, revealing the challenges and how we overcame them.
Can you buy a Student HMO, with just a 20% deposit?
My client, a seasoned property investor with a robust portfolio held within their existing limited company, identified a high-yield opportunity: a 5-bedroom student HMO in Exeter. This represented a strategic diversification into the HMO market, offering significantly higher returns than their traditional BTLs. However, this venture came with unique challenges.The significantly higher yield was attractive, despite the inherent risks associated with student lettings. The primary hurdle? Securing financing with a 20% deposit, a figure most lenders deem too low. Furthermore, the purchase was to be made through a newly established limited company, creating a deposit transfer dilemma that required careful financial structuring and expert tax advice.
Beyond their established careers, both applicants found property investment appealing for its tangible nature. They valued the ability to physically inspect their assets.When considering financing for this student HMO, lender recommendations leaned heavily towards 5-year fixed-rate mortgages. This was primarily due to the more favorable Interest Coverage Ratio (ICR) calculations, enabling them to secure a larger loan amount.Given the property's acquisition through a newly formed Special Purpose Vehicle (SPV) limited company, they strategically prioritised overall cost over upfront fees, understanding the tax-deductible nature of such expenses. This decision underscored their focus on long-term financial planning, highlighting the importance of comprehensive tax advice in property investment.
Who Was Able To Help When It Came To Purchasing A Student HMO, With A 20% Deposit, Through A Limited Company?
Following extensive research, Kensington Mortgage Company emerged as the most cost-effective lender capable of facilitating the purchase. They were receptive to lending to a newly established limited company for a student HMO with a 20% deposit. As a condition of the loan, the clients were required to obtain Independent Legal Advice (ILA), a crucial step that incurred additional costs. While the lender's valuation process was straightforward, the clients elected to commission a more comprehensive private survey, demonstrating their commitment to thorough due diligence.
Kensington provided a 5-year fixed-rate mortgage at 6.24%, which included a £1,999 arrangement fee and a £595 valuation fee. The APRC for this mortgage was 7.20%.
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