Daniel, an experienced single-let landlord, wanted to buy a seven-bedroom HMO for £420,000 through a new limited company, but had no HMO track record and no company trading history.
Two mainstream lenders turned him down before we found a specialist HMO lender that backs first-time HMO landlords and new SPVs with relevant wider landlord experience. The result: a completed purchase at 70 per cent loan-to-value and the start of Daniel’s HMO portfolio.
This case study is an illustrative example, based on the kind of enquiries Drake Mortgages handles, of how the right lender and structure can turn a first HMO purchase from a dead end into a completed deal.
The Client
Our client, whom we will call Daniel, was an experienced single-let landlord with three standard buy-to-let properties held in his personal name.
He wanted to move up into higher-yielding property and had found a seven-bedroom house near a large employer, already laid out as a shared house and let room by room. It was a genuine HMO producing strong rent, and the numbers looked excellent on paper.
The Objective
Daniel wanted to buy the property, priced at £420,000, through a newly formed limited company, a special purpose vehicle set up purely to hold this investment.
He had a deposit of around £125,000 available and wanted to borrow the balance. His aim was straightforward: acquire a strong income-producing HMO in a tax-efficient structure, and build the start of a portfolio he could grow.
The Complication
On the face of it this looked simple, but two things complicated it, and they pulled against each other.
First, Daniel had never run an HMO. Although he was a competent landlord, several HMO mortgage lenders reserve their lending, or their best terms, for applicants with a proven HMO track record. A large seven-bedroom shared house is a step up in management from single lets, and a number of lenders simply would not consider a first-time HMO landlord at this size.
Second, he was buying through a brand-new limited company with no trading history and no assets of its own. Lenders assess a new SPV on the strength of the people behind it, and would require personal guarantees, but combined with the lack of HMO experience it narrowed the field further. The two issues together, first-time HMO landlord and a newly formed company, ruled out a large part of the market before we even reached the property itself.
How We Assessed the Options
As a whole-of-market broker, Drake looked across the specialist HMO lenders rather than the handful of familiar names, and weighed three broad routes.
| Option | Considered | Outcome |
| Mainstream HMO lender | A lender with competitive rates but a firm requirement for prior HMO experience. | Ruled out. Daniel’s lack of an HMO track record meant he did not meet the entry criteria, however strong the property was. |
| Personal-name purchase | Buying in Daniel’s own name to widen lender choice and simplify the application. | Ruled out. It would have undermined his tax planning for a portfolio, and did not solve the core experience issue. |
| Specialist lender open to first-time HMO landlords | A specialist that lends to new HMO landlords and to newly formed SPVs, assessing the applicant’s wider landlord experience and taking personal guarantees. | Identified as the right route. It fit the structure, the property and Daniel’s profile. |
Working Through the Options
Step 1 – The obvious lender, ruled out
The most competitive headline product came from a lender that required applicants to have held an HMO for at least two years. Daniel had strong single-let experience but no HMO history, so he fell at the first hurdle.
Pushing the application there would only have wasted time and left a footprint on his credit file for a decline he could not avoid.
Step 2 – Reconsidering the structure, and keeping it
We looked at whether buying in Daniel’s personal name would open more doors. It would have widened lender choice a little, but it cut across his reason for using a company in the first place and still left the experience gap unsolved.
Rather than compromise his longer-term plan to fix a short-term problem, we kept the SPV and looked for a lender comfortable with both a new company and a first HMO.
Step 3 – The right lender for the whole picture
We identified a specialist HMO lender that actively lends to first-time HMO landlords and to newly formed SPVs, provided the applicant has relevant wider landlord experience and gives personal guarantees.
Daniel’s three years of single-let landlording was exactly the kind of background this lender wanted to see. Just as importantly, this lender valued larger HMOs on a commercial, income-led basis, which suited a strong seven-bedroom property producing high room rents.
Identifying the Right Route
With the lender chosen, the numbers worked.
Valued on its rental income rather than as an ordinary house, the property supported borrowing at around 70 per cent loan-to-value, roughly £295,000, comfortably within Daniel’s £125,000 deposit. The strong room income cleared the lender’s stressed rental cover test without difficulty.
Because the shared house had five or more occupants, we confirmed that a mandatory HMO licence was required and checked the local authority’s position, and we established that the property sat outside any Article 4 direction, so its established HMO use was secure. All of this was settled before the application went in, so there were no surprises at valuation.
The Outcome
Daniel completed the purchase of his first HMO through his new limited company, at the loan-to-value he needed and in the structure that suited his portfolio plans.
What had looked, with two mainstream lenders, like an application that could not get off the ground became a straightforward completion once it was matched to a lender who understood both first-time HMO landlords and newly formed SPVs.
He now has the foundation of the portfolio he set out to build, and a lender relationship he can return to for the next purchase.
This case study is illustrative. Names and some details have been changed, and figures are examples used to show the process rather than a specific client’s exact circumstances.
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