- HMO Buy to Let specialists
- Exclusive rates available
- 5-star reviews
- Free advice
House of Multiple Occupation (HMO) Mortgage
Letting out a multi-room Buy to Let property to several people who are unrelated (for example, using a house as student accommodation) can throw up all sorts of complications, both with local authorities as well as mortgage lenders, and you need to be aware of all the HMO (house of multiple occupancy) legislation. However, you may unfortunately find that various local authorities will each have their own rules regarding what constitutes an HMO, what a landlord’s duties will be and indeed whether it needs to be officially licensed.
As if to cause further frustration, individual Buy to Let mortgage lenders, too, can have their own differing definitions of what an HMO is, and the types of properties they are willing to lend against.Read More
For reasons of clarity and expediency (as well as sanity), it can be hugely beneficial to work with a specialist Buy to Let HMO mortgage broker with an in-depth knowledge of the HMO market who will know what to look out for, and will be able to guide you through the process of obtaining an HMO (house of multiple occupation) mortgage.
HMO Mortgage Information
As a Buy to Let owner, the responsibilities of being a landlord will be at the forefront of your mind, whether you are new to the business or have a long track record of letting a portfolio of properties. As with any business, you need to keep up to date with the rules and regulations that will affect you, and understand your obligations when you are letting out a property to others. This is particularly true in the case of a House of Multiple Occupation (HMO), and can have an influence on your mortgage application.
The Housing Act 2004 – and the Housing (Scotland) Act 2006 – first defined HMOs as a distinct type of property letting, and were aimed at setting out protections and safeguards for tenants living in multi-unit properties. Historically, these types of accommodation had put residents at greater risk of injury, either due to lack of maintenance and/or safety measures on the part of the landlord, or the actions of other tenants. The aim of these housing acts was to make it easier for local authorities to check that landlords of certain types of properties were adhering to certain key requirements, such as fire safety rules, by requiring them to apply for a licence.
However, it’s worth noting that not all HMOs need landlords to be licenced. The broad definition of an HMO is a property where two or more ‘households’ share communal areas, such as a kitchen, bathroom or toilet – and in this context, a ‘household’ can be a family, couple or single person with accommodation in a single unit of the property. Typically, each household in a property will have a separate contract with the landlord, but you may also find instances where a group of students might share a collective agreement with the landlord, although each would individually sign, and the law would still view them as being four separate households.
HMOs can include shared houses, hostels and shared worker accommodation, and are sometimes alternatively known as ‘multi-lets’ or ‘multi-unit properties’.
What is the criteria for an HMO Mortgage?
Individual lenders will always have their own varying criteria for handling HMO mortgage applications, but the general principles will remain consistent with conventional Buy to let mortgages. However, there are a few distinct differences in the criteria that specialist lenders will apply to HMO mortgages – some examples as listed here:
- Experience – Mortgage lenders handling HMO applications will usually shy away from lending to first time Buy to Let purchasers. You will usually need to show at least 12 months’ experience of owning and running a Buy to Let property.
- Occupancy – Most lenders will impose a maximum limit of eight units within the multi-occupancy property, although there are some lenders than will accept more.
- Client types – Lenders will extend mortgages to people or portfolio landlords under their personal name, or a limited company.
- Loan sizes – As the rental income from a multi-let property is generally greater than that for a single-let dwelling, this will invariably mean access to a larger mortgage loan.
- Loan-to-Value – Most lenders will only lend a maximum of 75% of the value of the property, although some may go higher. This might also be affected by the loan size.
- Property value – The usual minimum HMO property value is £100,000, although this will rise in London, and you may find some lenders who will not impose a minimum value.
Do I need a license for an HMO?
The housing acts mentioned previously obligate landlords of Houses of Multiple Occupancy (HMOs) that are larger – with multiple tenants presenting a higher potential risk – to obtain a licence from the local authority. It’s mandatory for properties of three stories or more, where five or more occupants make up two or more households. You must be a ‘fit and proper person’ in order to obtain a licence, and the authorities will take your previous history as a landlord into consideration when reviewing your application.
On top of the minimum mandatory requirements that the Government set out, local authorities are also able to impose their own extra requirements and additional licencing criteria, which might require other types of HMO to be licenced. Local councils may introduce these additional licencing requirements if a certain type of property, or HMOs in a certain geographical area, have been shown to present a higher statistical risk of danger or fire.
It’s important to check with your local authority about whether you need a licence for your type of property, and what other conditions they might have. Fines for operating an HMO without a licence are £20,000 in England and Wales, and £50,000 in Scotland.
How many people can occupy an HMO?
Houses of Multiple Occupancy (HMOs) are designed to provide accommodation units to be let to two or more ‘households’ under the same roof, and are defined by the use of shared areas – usually kitchen, bathroom, toilet or possibly just a stairwell. There is no set rule for how many people can occupy an HMO property, but when considering a mortgage, some lenders will impose a limit according to their own criteria. In general, lenders will accept the maximum number of habitable rooms as five, although there are some lenders who will be prepared to accept more, and a very rare few who will have mortgage products with no upper limit at all, although these are not easily available.
If you need a mortgage to purchase an HMO, then the lender’s stipulations will determine the maximum number of people you can rent rooms to, and possibly the type of people living there. You will also need to be familiar with your legal obligations and responsibilities – obtaining a licence for the property if it is three storeys high or more, and conforming to legal requirements for health and safety in areas such as:
- Gas, fire and electricity
- Rubbish disposal
- Cooking, cleaning and washing facilities
You should take these legal responsibilities seriously, and make sure you get proper advice if necessary before entering into any legal agreement.
HMO Mortgage Rates
Lenders base much of their decision as to how much you will be able to borrow, and as such you are likely to get a greater mortgage loan offer on an HMO than you are on a normal Buy to Let. However, lenders do also see these properties as a greater risk, so they will typically offer slightly higher interest rates on an HMO mortgage than those for a conventional Buy to Let loan.
There is one way to combat this. Across the board, for all types of all mortgages regardless of their type (i.e. residential or Buy to Let), the larger the deposit or level of equity you can supply, then the better the interest rate the lender will offer. By reducing the lender’s exposure, you are reducing their perceived level of risk.
The rates can also be influenced by the level of fees associated with the mortgage deal. Although not always the case with all lenders or HMO mortgages, if you pay a higher fee for the product, then a lower interest rate is usually available. Be aware though, that a lower interest rate product might not be the best deal in your circumstances, and it’s up to you to consider all peripheral costs and conditions and make sure that it will work to your benefit in the long run.
The charges can also vary according to the type of product or scheme – either fixed-rate or tracker. As a general rule, fixed rate mortgages are priced higher than a tracker or discount variable rate mortgage. Also, the longer the term of the fixed rate, the higher the interest rate is likely to be – i.e. a 5-year fixed mortgage with be higher-priced than a 2-year deal.
You could be forgiven for feeling confused by the sheer number of possible variants in rates, types of product, lenders’ criteria, property characteristics, personal circumstances and regulations. It’s always worth talking to an experienced professional to get clarity – drop us a line at The Mortgage Centres and our team will make sure you obtain the best deal to suit your situation.
HMO Mortgage Lenders
HMO Mortgages are a fairly niche product within the entire mortgages markets, so it’ll be no surprise to hear you won’t simply be able to pop into your local high street lender and pick up a multi-let scheme. There are a number of specialist lenders who cater to the requirements of Buy to Let landlords of HMOs, and each will have their own criteria for definitions of what properties fall into the HMO bracket and whether they will lend on them. It’s not unheard of for lenders to decline an application on the basis of the number of storeys or rooms in a property.
Specialist mortgage lenders will also often have quite varying lending limits, deposit requirements, and their view on your track record as a Buy to Let landlord. It can be quite a labyrinthine task to find a lender with competitive rates and terms to suit your circumstances, but at The Mortgage Centres we have a specialist team of brokers who are highly knowledgeable within this sector, and will be able to guide you through every step of the process to getting the right product for you.
Can I get a Limited Company HMO Mortgage?
Limited Company Buy to Lets and Houses of Multiple Occupancy (HMOs) have become areas of significant growth within the mortgages market, fuelled by changes in tax allowances and a variety of new laws introduced for landlords in recent years. Demand for both continues to increase, and we often get enquiries asking if it is possible to get a Ltd Company HMO Mortgage.
Even though there are many lenders that will place restrictions on who they lend to, on what kind of property and how much, this is still a growth area in the Buy to Let market and you can indeed get an HMO mortgage for a limited company. This kind of mortgage is more difficult to find than a standard Buy to Let mortgage, but with a greater number of lenders now willing to offer limited company Buy to Lets, and also more extending loans for HMOs, it stands to reason that they should be willing to combine the two.
Our team at The Mortgage Centres handle mortgage applications for all kinds of mortgage products. Once we understand your individual situation and your needs, we will be able to show you the right lenders for the kind of HMO mortgage you’re looking for.
Can I get a Secured Loan on an HMO Property?
For whatever reason, you may at some point in the future need to raise additional funds secured against an HMO that you own. This could be for:
- House improvements
- Debt consolidation
- To help with a deposit on another property
- or many other reasons
Your first action might be to consult with your current mortgage provider about increasing your borrowing, or to perhaps take out a remortgage on the property. However, in some cases this is not possible or desirable, and so a secured loan could be your best alternative option.
You will find that secured loans are available on HMOs in the same way as they are for conventional Buy to Let properties. Landlords often find them to be a preferable form of borrowing, as they can often provide a greater level of borrowing than that from a standard mortgage, and will maximise the amount they are able to borrow.
Do pay close attention to the costs, however. Rates and fees for secured loans are usually higher than for a standard mortgage, so you should research the terms thoroughly and understand the risks as well as the possible benefits before taking out the loan. At The Mortgage Centres, our team includes HMO mortgage experts so please give us a call to arrange a no-obligation consultation.
HMO Mortgage Broker
Houses of Multiple Occupancy (HMOs) can seem like a lucrative prospect, and do in fact work out that way for many Buy-to-Let investors. The potential to significantly increase your rental income from the property by making it an HMO, rather than a single-let family home, makes this one of the fastest-growing areas of the rental market. However, HMOs do come with extra challenges and a raft of laws and regulations to which you must adhere.
The first challenge is often obtaining the required mortgage finance to purchase the property. This is a necessity for many, and while applying for a mortgage on standard residential and single-let properties is common practice, the extra work required for buying a House in Multiple Occupancy can leave borrowers feeling confused and daunted.
Using a mortgage broker, and especially a specialist broker like our team at The Mortgage Centres, can prove invaluable for investors in HMOs, whatever your level of experience. With such a huge range of variables and a complex landscape of conditions and criteria, an expert HMO Mortgage broker with a deep familiarity with the market will be able to make sure you get the most suitable mortgage to meet your needs and goals.
Our team at The Mortgage Centres has a great deal of experience in handling mortgage applications for HMOs and Buy to Let properties, and are in a favourable position to source the best mortgage for your requirements. We have access to a number of specialist niche-market lenders who offer deals that you won’t see advertised online or on the high street.