Photo by Urban Island Property
While interest rates continue to dominate the headlines, they are only one piece of the puzzle when choosing the right mortgage for your investment property. Many landlords and investors focus solely on securing the lowest rate, but there are other crucial factors that can impact your returns, refinancing options, and long-term strategy.
Since my last update, we’ve also had a fantastic time at the HMO Awards, where we came home with a Highly Commended for HMO Specialist Finance Provider. It’s amazing to be recognised for what we do, and it was a brilliant opportunity to catch up with other HMO specialists in the industry.
In this update, I’ll share what you need to consider beyond the interest rate—from working with the right broker to understanding valuation methods, calculating overall costs, and choosing lenders you can rely on. These insights will help you make informed decisions and avoid the pitfalls of focusing only on the rate.
1. The Right Broker
I often tell clients that there are no “magic” lenders out there. Some investors believe that if they keep searching, they’ll eventually find the perfect product—usually something with a low rate and high investment value. Unfortunately, that’s not how the market works.
What you really need is a broker who understands your specific market, especially if you are investing in specialist areas such as HMOs, serviced accommodation, or properties with complex ownership structures. An experienced broker will know what’s achievable for your property and how to find the best value-for-money product for your circumstances.
Sometimes, paying a slightly higher interest rate is the smarter choice if it means achieving the investment value you need.
2. The Valuation Methodology
The valuation methodology used by your lender is a critical factor in determining the success of your investment. There are several ways to value an HMO, and specific rules dictate when each valuation applies.
For example, you’re unlikely to achieve an investment valuation on a 4-bedroom, 2-bathroom HMO outside of an Article 4 area, regardless of the lender. Similarly, some lenders will never offer an investment value for a 6-bedroom, all en-suite HMO.
Understanding how your lender values properties—and the criteria they use—is essential. An experienced broker will be familiar with these nuances and will often have access to broker-only specialist lenders who can offer more favourable valuations.
3. Overall Cost
While a low interest rate can look attractive at first glance, it’s vital to consider the overall cost of the mortgage. We’re currently seeing many products with very low rates but extremely high lender arrangement fees—sometimes as much as 7%!
These fees are often added to the mortgage, increasing the overall loan-to-value (LTV). This can have a knock-on effect on your future borrowing capacity because once you own four investment properties, lenders require your total portfolio LTV to remain under 75%.
Additionally, you’ll be paying interest on that added fee for the entire duration of the loan—not just during the fixed-rate period. Make sure you include this in your cost comparisons. When it’s time to refinance, borrowing may also be capped at 75%, meaning you’ll need to be prepared to inject additional funds if property prices haven’t risen.
4. Lender Reliability
Finally, it’s crucial to choose a lender who does what they say they’ll do. This is particularly important with bridging loans, where some lenders promise low rates and high LTVs upfront but later change the terms after the valuation report or document review.
A reputable lender won’t move the goalposts unless there’s a serious issue with the valuation. Again, this is where a broker with strong relationships in the market can make all the difference. They’ll know which lenders are trustworthy and which ones are likely to deliver on their initial offer.
While the deal may not always look as attractive on paper, achieving the result you planned for is what really matters.
Final Thoughts
When choosing a mortgage, don’t just focus on the interest rate. Consider the broker you’re working with, the valuation methodology applied to your property, the overall cost of the deal, and the reliability of your lender.
Taking a more holistic view of these factors will help you avoid costly mistakes and ensure your investment strategy stays on track.
If you’d like to discuss your mortgage options or have any questions about the points covered here, book a call with me—I’d be happy to help.
About the Author:
Ellie Broadhurst is a specialist mortgage broker working at Baya Financial in partnership with The HMO Roadmap. She works with HMO property investors throughout their journey, from clients starting on their first project through to experienced portfolio landlords and developers. Learn more about Ellie here.