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HMO Mortgages – Advice For Landlords
If you’re a landlord with one or more HMO properties, you’ll already be familiar with the rules and regulations that apply to Houses In Multiple Occupation and the HMO mortgage application process. However if you haven’t applied for a new HMO mortgage or remortgage for a while, here’s an update.
Likewise, if you’re considering becoming a multiple occupation HMO landlord, or you’re a Buy To Let Landlord whose BTL property has been reclassified as an HMO, then you’ll find some useful insights here too.
Whatever your reason for needing an HMO Mortgage, we recommend discussing your HMO property project with a specialist HMO Mortgage Broker to help you raise the mortgage finance you need for your HMO property.
An experienced HMO Mortgage Adviser will find out about you and your property and help you compile all the documentation you need in advance of your HMO application.
They will also introduce you to specialist lenders who offer bespoke HMO mortgage products at the most competitive HMO mortgage rates.
What defines an HMO property?
HMO stands for ‘Houses In Multiple Occupation’. These are rental properties that accommodate three or more people who are not related to each other, with each tenant paying rent to the landlord. Each person has their own bedroom and shares kitchen, bathroom and toilet facilities with the other tenants in the property.
Although the tenants live under one roof, they don’t live together as a single household, unlike a standard Buy To Let property that houses either a single person, a couple, or a family.
Up until October 2018, properties were only classified as HMOs if they were three storeys high. However this rule changed in England and Wales which meant that many standard Buy To Let properties were redefined as HMOs.
Tenants who occupy an HMO are typically university students and professionals like contractors and interim NHS staff.
Unlike a normal buy to let property, you are allowed to live in the HMO as well as your tenants. Your property will continue being classed as an HMO, provided the number of tenants in the property is higher than two.
Large and Small Matters
There are two types of property categories for HMOs – large and small. A small HMO is a two storey property that houses a maximum of three tenants.
A large HMO is a property that houses five or more tenants whether it’s built on two or three levels. If a property you intend to buy has three storeys, then it is also classed as a large type of HMO.
Large HMOs require a five-year licence and are subject to inspection by the local council. As a responsible landlord, you will need to apply to the local council for an HMO licence if you own a large HMO.
When Do You Need An HMO Mortgage?
You will need an HMO mortgage if your buy to let property has been reclassified to an HMO, or you are buying an HMO property and need to raise mortgage finance.
You may also need to remortgage your existing HMO or portfolio of HMO properties.
If you run your portfolio of HMO properties under a limited company, a specialist HMO Mortgage Adviser will help you achieve the most value for money when it comes to accessing the most competitive interest rates.
What is an HMO Mortgage and How Do They Work?
HMO Mortgages are not the same as standard Buy to Let mortgages because they are regulated in a different way. Lenders regard HMO properties as specialist and charge more for their mortgage products as a result.
The only similarity is that lenders regard the total rental income of an HMO property the same as they would the rent from a single household Buy to Let, rather than a number of rental incomes from unrelated tenants.
HMO mortgage products can cost more because HMO property valuations require a specialist process than standard Buy to Let properties. HMO mortgage rates are based on the London Interbank Offered Rate (LIBOR) which is an international lending rate used by global banks. So be aware of this when you start to compare interest rates.
Mortgage Lenders will also set a limit on how much they are prepared to lend an HMO landlord. This is because HMOs are considered higher risk so lending criteria can be stringent. For example, lenders will seek assurance of the landlord’s ability to run an HMO property responsibly and may put a limit on the number of bedrooms the property has.
How Do I Qualify for an HMO Mortgage?
As well as providing the usual information for a lender to do their checks, such as proof of your income and your credit history, HMO mortgage lenders set their lending criteria on some or all of the following:
- whether the property requires an HMO licence
- the total number of rooms
- how many bedrooms it has
- the number of kitchens in use
- potential rental income
- your experience as an HMO landlord
- Minimum property value
- Maximum number of storeys in the property
If you’re new to buying an HMO property, it’s wise not to start the application process by yourself because of the complexities involved.
How To Arrange An HMO Mortgage?
Our advice is to always go through a specialist HMO mortgage broker rather than approach a lender directly. The majority of specialist lenders prefer dealing with mortgage applications via an experienced HMO Mortgage Broker.
HMO Mortgage applications can be complex because they require specific supporting documentation to be included as part of the HMO application process.
A good HMO Mortgage Broker will handle your HMO mortgage application for you from the beginning to the end of the process, so you don’t have to take time out of your busy schedule. They will also help you plan ahead in advance of variable rate increases.
As well respected mortgage brokers we always get to hear about new fixed rate offers in advance, and will share these with you so you can take advantage of the most favourable interest rates on the market.
Always choose a Mortgage Broker that is authorised and regulated by the financial conduct authority.