Getting an HMO mortgage
If you’re looking to let out a multi-room property to multiple occupants who aren’t related, then you’ll need to be aware of HMO legislation. Unfortunately for Buy-to-Let landlords, different local authorities will have different criteria as to what classes as a HMO. They will also have different criteria as to what needs to be licenced.
Perhaps more frustratingly, mortgage lenders can also vary in their definition of an HMO. For that reason, it can be advantageous to work with an HMO mortgage broker when looking for Houses of Multiple Occupancy mortgages.
WHAT IS AN HMO MORTGAGE?
Investing in a Buy-to-Let property involves understanding a range of landlord responsibilities, laws, and regulations. Including those related to Houses in Multiple Occupation (HMOs) which can affect getting a mortgage.
An HMO is broadly defined as any property in which a washing or cooking area, or a toilet, is shared by three or more people from two or more “households.” A household in this context can be a family, a couple, or a single person.
Usually, each household in the property will have a separate tenancy agreement with the landlord. Although, there can be exceptions to this. For example, there can be cases where four students sharing a house can have a single overall tenancy agreement. In this situation, the law would still consider them to be four separate households.
Other examples of HMOs can include shared houses, hostels, and shared worker accommodation. They may also be referred to by other phrases such as multi-lets, or multi-unit properties.
An HMO mortgage is when you obtain a mortgage on this type of property. They typically fall under the category of a Buy-to-Let mortgage.
WHAT IS THE CRITERIA FOR AN HMO MORTGAGE?
The criteria for an HMO mortgage can and likely will vary from lender to lender. However, the principles remain fairly constant with that of a standard Buy-to-Let mortgage.
However, there are some distinct differences that lenders will typically apply to HMO mortgages. Examples of some of the typical areas of HMO criteria are as follows:
- Experience – HMO mortgage lenders typically don’t consider first time buyers or landlords. Applicants will likely need a minimum of a 12-month track record of owning a Buy-to-Let.
- Occupancy – The maximum number of bedrooms allowed by most is eight. However, there are lenders that may consider more.
- Client types – Loans are available in personal names and limited companies. They are also available for portfolio landlords.
- Loan sizes – Rental cover will be looked at on a multi-let basis. This invariably will give a greater loan size than a typical single-let dwelling.
- Loan to Value (LTV) – Typically restricted to 75%, but some lenders will consider more. Loan size may also be relevant to the maximum loan-to- value permitted.
- Property value – the minimum HMO property value is usually £100,000. However, this may be increased in London and as with all criteria, this amount may vary with a few lenders not imposing any minimum property value.
Do I need a licence for an HMO?
Certain HMOs must be licensed by the local authority if they meet specific criteria. This applies if it has at least three stories and five or more occupants. These five or more occupants must make up at least two households for it to apply.
Local councils can add additional licensing, on top of the mandatory requirements from the central government for licensing. Additional licensing requirements can be introduced by local authorities if, for example, HMOs of a certain type or in a certain geographical area have been shown to have a greater fire risk.
If you are looking to operate an HMO, it’s important to check with your local council whether a licence is required. Failing to do so where necessary is a criminal offence and can result in fines of up to £20,000 in England and Wales.
WHO CAN LIVE IN AN HMO?
Definitions of HMOs differ between local authorities and lenders, causing confusion for tenants and homeowners about occupants.
For a house to be an HMO, there needs to generally be three or more people living there and sharing the facilities. These people can’t be related to each other and don’t own the property.
The shared facilities would include the kitchen, bathroom, and designated communal areas. There are no rules stating exactly who can or can’t live in an HMO, but generally you would expect tenants to be adults. Typically, tenants are students living away from the family home or professionals who want to live close to work.
Many people ask if a landlord can live in an HMO. With a standard Buy-to-Let, you can’t live in the property while renting it out. The product is geared towards the whole house being used as a source of revenue.
GETTING THE BEST HMO MORTGAGE RATES
HMO properties offer high rental returns but come with higher mortgage rates due to perceived risk by lenders.
The size of the deposit or equity affects mortgage interest rates. Some lenders offer lower rates with higher fees. Although, keep in mind that the lowest rate may not always be the best value for your borrowing needs.
The type of mortgage product chosen can affect the interest rate charged. With fixed rates generally higher than variable rates, and longer fixed terms costing more.
IMC Mortgage Brokers can help navigate the complex world of HMO mortgage rates for you. Reach out today and we will pair you with one of our expert HMO mortgage advisers.
FINDING THE BEST HMO MORTGAGE LENDERS
HMO mortgages are a specialised niche in the market. Therefore, obtaining one from your normal high-street lender isn’t always possible. Therefore, a specialist lender would be required. Each lender may have different criteria for lending, such as limits on rooms or storeys.
HMO mortgage lenders have different limits and requirements. IMC Mortgage Brokers can help find the best rates for landlords looking to buy multi-unit properties. Contact them for assistance.
Can I get a limited company HMO mortgage?
Yes, it’s entirely possible. Tax changes and new laws have led to growth in Limited Company Buy-to-Lets and HMOs. Demand is always increasing for limited company HMO Mortgages.
Although, HMO mortgages are much less available than standard single dwelling Buy-to-Lets, with an increasing choice of lenders, now is the best time to obtain one.
If you’re looking to obtain a Limited Company HMO mortgage, get in touch today.
CAN I GET A SECURED LOAN ON AN HMO PROPERTY?
It is possible to get a secured loan if you wish to raise some capital against an HMO property you own. There are many reasons this could be for, such as:
- Home improvements
- Assist with the purchase of another property
- Debt consolidation
Secured loans are available for HMOs and work the same way as other Buy-to-Let secured loans. They are a popular form of borrowing for landlords, as on many occasions it is possible to borrow more than a standard mortgage.
Rates and fees can be higher than those of a standard mortgage, so ensure you carry out your research wisely and consider all options. We have access to HMO Mortgage experts, so if you’re looking to obtain some professional advice, reach out today.
HMO mortgage broker
At IMC Mortgage Brokers, we understand how specialised certain areas of the market can be. We have access to some of the best Buy-to-let mortgages for HMO properties available.
We know that knowledge of the relevant sector is not just important, but indeed paramount to ensuring you receive the best level of advice.
Why not contact us today and speak to one of our specialist HMO Mortgage Brokers.
