What is an HMO Mortgage?
If you’re planning to buy a property that you will let to three or more unrelated tenants, you will need a special mortgage and to meet certain other requirements which is called an HMO Mortgage.
A House of Multiple Occupancy (HMO) is a property that’s divided into living spaces for tenants – usually with locks on each bedroom door and some shared facilities such as a kitchen or bathroom. Student house shares are a typical example of an HMO.
What are the different types of HMO Mortgages?
Mortgages for HMOs come in different forms, just like standard residential mortgages. You can opt for a fixed rate mortgage, so that you know exactly how much your mortgage payments will be each month. The alternative is a variable rate mortgage, such as a discount or tracker mortgage, where payments can rise or fall in line with the Bank of England base interest rate.
You can also choose between a repayment or interest-only mortgage. Many landlords opt for interest-only, as the repayments on your mortgage will be much cheaper and give you a greater profit from your tenants’ rent. You will however need to plan ahead to repay the full mortgage amount when the term ends.
Who can get an HMO Mortgage?
Most HMO mortgages are only available to experienced landlords – where you already have one or more rental properties and are expanding into the HMO market.
A few specialist lenders will allow first time landlords to take an HMO mortgage, but the criteria are very strict.
How would you arrange an HMO Mortgage?
HMO mortgages are fairly specialist. When you buy an HMO there’s a lot to be aware of beyond your mortgage, including regulatory requirements and licensing.
Because of that, it’s important to get specialist advice from an experienced mortgage broker. We’ll make sure you’re fully aware of your responsibilities as a landlord, as well as comparing different mortgage offers. We’ll explore your specific situation and then look at HMO mortgage rates and criteria to recommend the most suitable options.
Speak To An Expert
We offer complete flexibility around you and can meet either face-to-face or online via a video consultation. And with us all being qualified in our specialist areas and having access to a wide range of lenders, we are able to help you no matter which part of the mortgage journey you are at.
How are HMO Mortgages different to Buy to Let Mortgages?
There are a number of differences between an HMO mortgage and a Buy to Let mortgage for a single household rental property.
They tend to be more expensive, as it is riskier to the lender to have people from more than one household in the property. There are also more criteria to satisfy for most HMO lenders. You may be asked about any or all of the following:
- The rental income you expect to get from the property
- Your experience as a landlord
- Whether you are buying the property as an individual or as a limited company
- The number of lettable rooms
- Whether you will use a lettings and management agency
- Whether the HMO needs a licence – this can vary depending on the local authority
- Whether each room has its own Assured Shorthold Tenancy agreement
- The types of tenants you will be letting to (students/professionals/housing association)
Other things to consider about HMO Mortgages
The big appeal of buying and operating an HMO is that you are likely to generate more income from the property than with a single household tenant.
That will also enable you to get a bigger mortgage. As with standard Buy to Let, the amount you can borrow is calculated based on a rental cover calculation – such that the rent you generate needs to cover 125% of your mortgage payments.
The location of the HMO is very important in getting maximum yield. If you’re planning to let to students, for example, you need to research the area carefully to make sure you are well placed to attract tenants.
You will also need to understand the requirements from the local authority in terms of property standards and whether you have the appropriate licences in place. If you will have nine or more tenants in a single property, it is considered a Large HMO and you will certainly need a licence.
Note too that many HMO lenders set a maximum of five bedrooms, beyond which you may need to explore commercial finance.
How can Assured FG help?
We cannot overstate how important it is to get good advice when you plan to buy an HMO. These mortgages are not authorised and regulated by the Financial Conduct Authority so there are areas that you need to consider closely, including fees as well as interest rates.
This is an area where we have a lot of experience and continue to support many HMO landlords with achieving their financial goals. Contact us today for an initial conversation about your plans and how we can help.
Your property may be repossessed if you do not keep up with your mortgage repayments. The Financial Conduct Authority does not regulate some Buy to Let Mortgages.