A House in Multiple Occupation (HMO) is a property that is rented to three or more unrelated tenants, that may share facilities such as a bathroom or kitchen.
Rather than rent a property to a single household, an HMO can allow landlords to rent the property to multiple households. The term ‘multi-let’ can also be used to describe an HMO, but it’s often used for smaller properties that don’t require licencing.
Landlords can then charge per room, per flat or per section of the property, usually resulting in an increased rental income.
The majority of HMO mortgage lenders will require landlords to have experience in letting property. There are only a handful of lenders that will consider new landlords with no experience, but the rates offered may be higher than average.
Some lenders may also have a preference on who manages the HMO, such as a letting agency as opposed to managing it on your own.
Despite their popularity, HMO mortgages are still considered a niche mortgage type. The mortgage application is very comprehensive when compared to a standard buy to let mortgage.
For this reason, HMO mortgages tend to be offered through qualified mortgage brokers and not direct to landlords.
Lenders may request information on some or all of the below:
- Experience of being a landlord
- Personal or limited company mortgage
- Location of the HMO
- The number of lettable rooms
- Management type (landlord or letting agency)
- Does the HMO have or need a license?
- Does each room have its own AST agreement?
- Rental income (proposed or actual)
- Types of tenants (students, professionals, housing association)
In addition to the above, lenders will also make standard mortgage assessments. This will includes assessments on your affordability, the amount you wish to borrow and your credit score.
HMO mortgage lenders
Getting the right HMO mortgage for your property is crucial. An HMO mortgage with high rates or fees can soon start eating away at those great yields. If you intend to rent the property as an HMO, then you will need an HMO mortgage.
If you have a standard buy to let mortgage but wish to change to an HMO model, then inform your lender first to see if this is permissible.
Each lender has varied criteria and the best deals are typically secured through mortgage brokers. The nature of your HMO will also either eliminate or add lenders to the options you can choose from.
Some lenders only lend up to a maximum number of rooms for instance. This is why it’s important to understand the criteria of your lender before applying. An HMO mortgage advisor can guide you on this. Whether an HMO requires a licence or not can also make a difference.
Lenders for licensed HMOs
The majority of HMO mortgage lenders consider anything up to five bedrooms. Anything bigger may require commercial finance.
If your HMO requires a licence, then you’ll more than likely need an HMO mortgage. This is because a regular buy to let mortgage wouldn’t be suitable.
The type of tenant you’re aiming to rent to can impact the lenders available to you. Some lenders may decline you if you hope to accommodate students or housing benefit tenants. This is simply because of the risk involved.
Having a licensed HMO can have benefits in terms of how a lender will value the property.
Lenders may consider the proposed rental income when assessing the value of your HMO. This is particularly advantageous when you’ve converted the property and are aiming to withdraw some equity.
Not every lender will value an HMO based on the rental income and will base the valuation on the HMO being a standard home. This can restrict the amount you can borrow, which defeats the purpose of having an HMO mortgage.
Lenders for non-licensed HMOs
If your HMO doesn’t require a licence, it may be deemed too small for an HMO mortgage. Lenders may therefore only consider giving you a buy to let mortgage instead.
There may be lenders who would consider you for an HMO mortgage, but without understanding the nature of your HMO it’s impossible to provide you with a tailored answer. You can make an enquiry at any time or simply ask our specialists a question.
HMO mortgage rates
HMO mortgage rates tend to be higher than standard buy to let mortgage products. This is because the HMO mortgage market is less competitive in terms of the number of lenders.
Lenders that are prepared to lend on an HMO will charge slightly higher fees and rates for a mortgage. That being said, the income from an HMO should be more than enough to cover a mortgage, utility bills and maintenance.
In addition, an HMO mortgage lender will usually take your rental income into consideration. This can drastically improve the maximum mortgage amount offered.
HMO mortgages can be offered on variable and tracker rates. LTV rates usually start at 80% LTV, with more attractive rates being offered with higher deposits and lower LTV ratios.
HMO mortgage specialists
To make an HMO profitable, number crunching is a must. Our advisors specialise in HMO mortgages and can help you to maximise your rental income by assessing your overall proposal.
Making your HMO as profitable as possible starts with securing a great deal. The majority of lenders that offer preferential rates, often do so via mortgage brokers.
Approaching lenders in the hope of securing a mortgage is never advised, as you won’t have a comprehensive understanding of each lender’s criteria.
A specialist can ensure the right lender is approached and that you’re on the best rates you qualify for. You can make an enquiry at any time or simply ask our experts your mortgage questions to get started.
