Need to raise funds for third property

[nightjob]

Im after some ideas on how to raise funds for a third BTL. I bought my first property in 2002 (which I lived in for 2 years), I bought it on a normal first time buy mortgage and later obtained consent to let. In 2011 I bought another, again on a normal 90% LTV mortgage, which I lived in temporarily, and now renting (HMO).

HMO has proven quite fruitful compared to my first property where the whole house is let to a family. I'm toying with the idea of obtaining another house and let as HMO, the problem is how to raise necessary funds with most BTL mortgages only offering 60-70% LTV.

Some rough figures:

Property 1
Market value 110k
Mortgage: 84k

Property 2
Market value £140
Mortgage: 106k

Ideally Im looking to purchase one for around £130k, any help would be appreciated.

[Claymore]

Realistically, I don't think you have enough equity to play with. A mortgage broker may tell you different but beware of excessive interest rates and fee's for higher LTV mortgages.

[cfaproperty]

You are already over 75% LTV on those two so you won't have enough headroom to capital raise for the deposit unfortunately.

You may also want to check how long those 'consent to let' approvals apply for, if they are both investment properties you need to advise the lender as if they get wind of it, they could pull the loans. Doing it once, and having a good reason to let it out tends to be acceptable but having done it twice now be careful.

[nightjob]

I don’t tend to use brokers, prefer to apply directly. I forgot to mention in my post that I have a £15k deposit. That only equates to around 11% of the purchase price. So would you say its best to wait until I can put together a 25% deposit for a BTL? (Means another 3 year wait).

CFAproperty- The first consent to let that was agreed, come with preconditions which I have met, on the second one they’re not as flexible and have asked me to convert to a BTL mortgage at the end of my fixed rate period which is Jul-13. Hopefully I should be able to do this very easily as it’s around 75% LTV with a slightly favourable valuation.

[cfaproperty]

I doubt capital values are going to increase much over the next 3 yrs (personal opinion) so saving hard for a larger deposit shouldn't leave you behind.

Bear in mind that if this second one is an HMO (either licensable or not) a lot of B2L lenders won't want to support you

[nightjob]

Think I might have to save, shame really as the property I was looking at is currently yielding 9% with a HMO conversion I think I can double that.

I know HMO mortgages are harder to come by and the arrangement fees amount to “daylight robbery “. Any ideas why that is? I can’t see any added risk for a HMO, any more than say a family of 4-5 living in one house.

[cfaproperty]

HMO's are more risky to a lender because of the extra 'management' costs and responsibilities that come with them. They will always view how they could manage the property if they were in a default/possession situation.

The other factor is that the property itself isn't usually granted the HMO license it is the 'Fit & Proper' person who manages it, so if you are no longer at the helm maybe the bank lender won't be classed as such.

As to fees, I disagree that they are higher than B2L lenders, because we fund most HMO's commercially and their fees are often lower than the residential investment ones.