Case study: A first-time landlord’s MUFB

Categories: Case study | mufb

Getting into the Private Rented Sector (PRS) can be challenging, especially if an aspiring landlord wants to take on a more complex property type. 

This first-time landlord was diving straight in to a specialist area of property investment. They helped our help to get a Multi-Unit Freehold Block (MUFB) mortgage. 

Multi-unit lets and houses of multiple occupation can be popular for their high yields, and the client wanted to rent each unit out to local students.

Even without prior experience owning an MUFB, it’s possible for a landlord to take their first step into renting by taking on a specialist property. Having a supportive mortgage broker and a suitable lender on your side can be incredibly helpful in guiding you through. 

When considering whether to lend large sums of money, lenders would ordinarily require a landlord to have some experience, especially when it comes to complex properties with multiple occupants. 

However, all business is about risk and reward. Some lenders, in the right circumstances, are willing to take bigger risks for the reward it brings.

The case

Investment route: Limited company, short term let.

Existing portfolio: None

The property: A Multi-Unit Freehold Block (MUFB).

The tenancy arrangement: Standard 12 month AST (Assured Shorthold Tenancy).

The borrowing requirement

The client was a first time landlord with no experience in managing any kind of property and, therefore, no prior portfolio. They requested a mortgage with a 15% deposit on a student let MUFB property. They had already submitted and received planning permission for the property.

The challenges we overcame

As we’ve stressed, the client was a first-time landlord with no experience – not even in single-unit buy to let properties, let alone a MUFB.

What’s more, an MUFB is in many ways more complex than its close cousin, a House in Multiple Occupation (HMO). If you are considering getting into property investment, and are considering these two multi-tenanted property types it is useful to understand the differences.

MUFBs have separate facilities (e.g. bathroom, kitchen, social space) for each individual tenant, while HMOs have shared amenities, with the private space restricted to a bedroom and perhaps an ensuite bathroom.

This particular client wanted to get into the student rental market. Student let properties carry some unique risks. 

Student accommodation has a higher turnover than most rental properties, because tenants typically rent for a year or maybe two. Wear and tear can be higher too, as with any multi-tenanted property, but also because sometimes the reputation for students letting loose at university can be true.

For these reasons and more, lenders have to be convinced that the landlord is capable of managing the risks and expectations associated with student accommodation.

While the client’s lack of experience in the PRS might be considered a major hurdle for some brokers, our advisors have access to several lenders more than willing to help.

The client gave the chosen lender ample reason to have faith in them. The property in question already had all the correct licencing and planning permissions in place, showing that the client was diligent and well-organised, despite their relative inexperience, so that really helped their case.

The client having a low deposit on the property was also a potential obstacle. Some lenders set higher minimum deposit amounts so that you, as the borrower, take on a larger proportion of the risk. When putting this alongside the other factors in the case (e.g. inexperience of the borrower, complex property type) multiple risk factors can make it harder to find a suitable lender.

This is where a detailed knowledge of the lender space comes into play. Lenders who can help need to be identified and then the costs compared to find the best financial outcome for the client. But once again, our brokers were able to negotiate through this with relative ease.

Happily, we were able to overcome all potential challenges and find a competitive MUFB mortgage to get the client on their journey within the student rental sector.

The solution

Property value: £143,000

Gross loan amount: £121,500

Loan to value: 85%

Rate: 6.79%

Term: 5 years

Payment basis: Interest only

Monthly mortgage payment: £758.41

Monthly rental income: £1,300

Gross yield (before costs): 10.91%

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