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Hmo Mortgages

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Aug 12, 2022

HMO mortgages lenders and rates – Full guide for UK HMO’s

We have witnessed a rise in enquiries from customers looking for mortgage advice on their houses in multiple occupations (HMO) or from potential investors looking to purchase hmo mortgages.

These types of properties are more complicated from a mortgage perspective than the mainstream mortgage.

We are fortunate to have access to some outstanding specialist HMO mortgage advisors who can offer the best advice in the HMO mortgage market.

Enquire here today; we can introduce you to an HMO mortgage lender to suit you with this specialist mortgage.

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What is an HMO?

A house of multiple occupations (HMO) is a property that at least three unrelated people have rented.

HMO properties rent rooms in a house and share the same facilities such as a bathroom or kitchen. They don’t form a single household the same way as family members living together.

This is the UK government’s definition of a household. It can be a single person or several members of the same family who live under the same roof.

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What does HMO property refer to?

Most UK lenders will consider a multi-let property a large house in multiple occupancies if it is occupied by more than five people or is three stories high.

Some mortgage lenders do not often offer HMO property mortgages. Specialist mortgage lenders’ help may be needed to obtain the best mortgage at the lowest price.

Both tenants and landlords love HMOs because they are often cheaper. Landlords often enjoy higher gross yields than standard buy-to-let properties.

However, houses with multiple occupancies have their difficulties. It can be challenging to operate one due to the time requirements landlords place on them and the higher running costs.

You’re in the right place if you wonder if an HMO mortgage is a good investment.

Our advisors can help you find a mortgage broker who is a specialist in this field and, in turn, they have connections with the best HMO lenders in the industry.

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Is it necessary to get a mortgage on HMO property?

HMO properties can be a risky investment, so lenders may be reluctant to lend to them.

Some lenders will lend to the right HMO proposal. We work with whole-of-market brokers who are familiar with working with specialists lenders who can cater to landlords with HMO properties.

HMO properties can be bought-to-let with mortgages

Although many of the UK’s largest lenders won’t deal with HMO borrowers, there are specialist HMO mortgage lenders who might be willing to help you.

Most UK HMO mortgage lenders subject these properties to strict lending criteria. Some limit the number of bedrooms, while others base their lending decisions on landlord experience.

HMO landlords interested in becoming HMO landlords need to be aware that not all properties can be operated without a license from their local council.

These topics will be covered in more detail. Enquire to speak with one of our expert advisors over the phone. They will help you find the right broker and compare HMO mortgages.

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What is the best time to get a commercial mortgage for an HMO?

A commercial mortgage is unnecessary for HMO properties as many buy-to-let lenders offer attractive rates in this area.

A commercial mortgage may be necessary for specific situations. If you are unsure, we can help with free advice to everyone.

Is there an HMO mortgage available for small companies?

Yes! If you are a limited company, applying for an HMO mortgage through your company may be less tax-efficient.

Some lenders cannot cater to limited companies, especially those on the high street. However, the advisors that we work with can help you find a broker who specializes in HMO mortgages.

Further information about applying for a mortgage in limited companies can be found here. Or, you can enquire, and an advisor will talk to you over the telephone about your HMO limited company mortgage application.

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How can you determine the value of an HMO property

Valuing an HMO is a complex process that requires professional assistance.

Talk to a professional here if you have any questions.

HMOs have a higher investment value because they are commercially valued. Multiplying rental income with the yield will give you a more excellent value than if the property was only bricks and mortar.

It depends on the circumstances of your case whether you value your HMO bricks and mortar-based or commercially.

A 3-bed property with bricks and mortar valued at £180,000 (valued as a single-unit family home) can be converted into a 4-bed HMO for a total rent cost of £2,000 per month / £24,000 annually, yielding a yield of 7.5%. The exact property value can be obtained if used as an investment.

Although the £320,000 investment value is significantly higher than the bricks-and-mortar valuation, evaluating your HMO on a commercial or investment basis is unnecessary.

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A surveyor will survey an area around your HMO. The area may have fewer owners-occupiers, making it less desirable for HMOs. This could increase its value on a bricks-and-mortar basis.

If your HMO is determined by the local planning authority and restricts development type, it will be more likely to be valued commercially.

Remember that a surveyor will closely examine the compliance of your HMO. It will impact the property’s valuation if it does not meet the minimum space requirements.

Talk to one of our expert brokers if you are considering investing in an HMO.

Send an enquiry to receive a no-obligation, free chat.

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Lending criteria for HMO buy-to-let mortgages

HMO mortgage lenders tend to base their eligibility criteria on…

  • The number of rooms on the property
  • How much experience the borrower has as an HMO landlord
  • If the property needs a license from the council

What number of rooms can an HMO house?

Each HMO mortgage specialist will prefer the maximum number of bedrooms a property can have. However, most lenders in this industry will allow for five. Some lenders will allow more, while others will limit the number of bedrooms to five. Others will not set a cap and apply it on a case-by-case basis.

Of course, it’s not just about bedrooms. Some lenders restrict how many kitchens can be installed, and some won’t lend mortgages to HMO properties with more than one. Some lenders allow six kitchens, while others allow more.

The number of storeys on a property may pose a problem for some lenders. Some lenders may be wary about buildings with more than four storeys, while others will happily deal with them.

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Minimal property value

UK lenders may also require that a minimum property valuation be listed in HMO mortgage requirements. This can be between £50,000 to £150,000. It is possible to find providers that do not have a minimum requirement.

What experience do I need to be an HMO landlord?

HMO mortgage providers will only work with experienced HMO landlords. They insist applicants have two or more years of experience in this role. Others will accept one year, while a few offer HMO mortgages to first-time landlords.

What license do I need to become an HMO landlord?

To obtain a license, register your rental property with the local authority if it has more than three habitable floors or is occupied daily by at least five people from at most two households sharing facilities.

Many UK lenders have made it a point to tie their HMO mortgage criteria directly to this, as they are not willing or able to offer unlicensed HMO loans.

Some lenders will allow you to apply for a license if you are looking for HMO properties that require one. However, you must wait until the application has been processed before you can apply.

What other factors affect my eligibility for an HMO mortgage?

HMO BTL mortgages can be a niche product, so borrowers have fewer UK lenders to turn to. However, the general criteria for evaluating applications are the same as standard buy-to-let mortgages.

Although HMO mortgage lenders typically take specific variables, such as the applicant’s experience or the number of floors the property has, many of the same factors apply to an interest-only buy-to-let application.

These include:

  • The applicant’s age and other personal information
  • Credit history of the applicant
  • Personal income of the applicant
  • No matter where the borrower is located in the UK

To find out more about the eligibility criteria for interest-only buy-to-let mortgage applications, send an enquiry to speak with one of our expert advisors, who have extensive experience in dealing with buyers of buy-to-rent properties in the HMO market.

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HMO mortgage rates

HMO mortgage rates are generally higher than standard buy-to-let rates but aren’t necessarily unfavourable across the board.

Most providers in this niche market limit the loan-to-value (LTV) to between 65 and 75%. However, lenders can go up to 80%, and some can even offer an 85% LTV HMO mortgage under certain circumstances.

Lenders generally limit HMO borrowers. The cap is usually between £500,000 and £1.5 million. There are however a few lenders that will give HMO borrowers as much as £2-3million+. Our advisors can help you connect with them.

Although HMO mortgage rates for buy-to-let can be more expensive than residential rates depending on how long the term is, they can still be very competitive.

Contact us to connect with the best broker.

They will use their expertise and contacts to help you find the lender with the best HMO mortgage rates for your situation.

An HMO is for people who can live in it.

HMO landlords often rent out their properties to professionals or students. Most lenders don’t care who the tenants are, as long as the investment is feasible.

Many customers have asked if they can live at their HMO with the tenants as a landlord. Yes, you can. Your property will be considered an HMO only if more than two non-family members are living at your home.

You may need to apply for an HMO licence with the local authority if you have an existing mortgage. Also, notify your lender to ensure you do not violate your deed.

 

Is there a secured loan for HMO landlords

Getting a secured loan against HMO properties you own and sufficient equity is possible. You might need extra funds but are unable or unwilling to remortgage.

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What is an HMO secured mortgage?

An HMO secured loan, also known as a second-charge HMO mortgage, is a loan that is secured against your HMO property’s equity. It functions in the same way as a second mortgage.

Lenders are more likely to allow secured loans than first-charge mortgages to landlords in the buy-to-let sector. Also, factors like bad credit are less critical. They must still have sufficient equity and meet the lender’s affordability requirements.

HMO secured loans are similar to HMO secured loans. Lenders may be more concerned about adverse credit if your property is an HMO.

Get the best HMO second mortgage rates.

The amount you can borrow to get a second mortgage on your HMO to finance additional borrowing will depend on two factors: your affordability, which is determined by your rental income, and your loan to value ratio (LTV), which is determined by how much equity you have. Your credit score may also be considered.

It is essential to meet all eligibility requirements and access the whole market to get the best rates for an HMO mortgage.

If you send us an enquiry, we can help you find the best HMO lender to match your requirements.

Talk to an expert about your HMO mortgage requirements

You can call today to ask any questions or request information.

Relax, and let us find the right broker for you. We do not charge any fees, and you are under no obligation to proceed.

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