What is a HMO?

These are mortgages secured on properties with 3 or more tenants of different households. Lenders view these mortgages as significantly more complicated than traditional letting as involves multiple parties.

 

HMO's and multi-lets are a very profitable sector of the market as multiple tenants tend to pay higher rents than one single family

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A few examples:

• Students

• Housing for employees

• Shared houses and flats

• Multiple flats on one freehold

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However, lenders operating in this area are limited. Those available can have rules and criteria which require expert interpretation. We have the experience to know these rules and so find the best lender and product for you. We can also help you regardless of whether it is licensed or unlicensed.

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How does it differ from a standard let?

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A standard let or assured shorthold tenancy (AST) is when a property it let to an individual / family as a single unit. However, a HMO is let out to three or more different tenants.

 

Normally rental voids are less likely with HMOs as all tenants are responsible for paying rent. However, it is usually more demanding running a HMO (especially a student let) .

 

HMO and Multi-let lending criteria 

To be success with your mortgage application, lenders will often assess the following criteria:

• Your personal experience of being a landlord.

• Whether you have a HMO license or not. 

• Location of property.

• Classification of tenants (Students, professionals, etc.)

• Rental income. 

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It is important to note, some lenders are more lenient than others when concerning this criteria. 

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What is maximum loan-to-value?

 

The maximum loan-to-value tends to lower for HMO properties. We would normally recommend you put in at least a 25% deposit, in order to get a reasonable interest rate. There are options at 80% LTV (20% deposit requirement), however, you would need to borrow from a specialist lender at a higher interest rate. 

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High street vs. specialist HMO lenders

 

High street lenders will have the best interest rates but will have a stricter criteria. This will often require a good track record for landlords and will only consider certain properties (maximum 4 bedrooms). For most HMO landlords, utilising these lenders would be preferred. 

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Specialist lenders will almost always have higher rates, however, they have more flexible criteria. They usually have lower deposit requirements and will consider first-time landlords. They will accept almost all HMO properties (up to 15-20 rooms). 

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Limited company HMO lenders

HMOs tend to be high yielding investments (compared to standard lets), so it is important to be tax-efficient. Due to past tax changes, limited company HMOs have seen significant growth. Speak to a qualified accountant to determine if a limited company purchase would be better in your circumstances. Many lenders will still consider your mortgage application in a limited company, speak to our team today to get the most up-to-date figures.

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Is a HMO license or Article 4 direction required?

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Before purchasing a HMO or converting a property to a HMO, there are considerations. 

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To convert a property to a HMO, this will often require planning permission. It is possible to get a mortgage offer (subject to planning permission), however only few lenders can accommodate this. In some cases, it is better to take out a refurbishment bridging loan, then to remortgage to a long term HMO deal.

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An Article 4 Direction is regulation enforced by your local council. If your property is in an Article 4 area, you need to apply to change the use of the property.

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We would recommend visiting the UK Government website to assess if you need a HMO license. Typically, a large HMO with 5+ rooms and a shared bathroom will require a license. These are valid for 5 years. Please note, local councils may have different requirements.

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Options for first-time landlords or buyers

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Specialist lenders are usually required for first-time buyers or landlords. 

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What can we do to help.

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We have been operating for a long period of time and so have a huge amount of knowledge on these rules and criteria of lenders. This means we can find a mortgage on your behalf, especially if you are finding it difficult to do so. In addition to this, we will get you very competitive rate.

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