HMO Mortgages – What you need to know
What is an HMO Mortgage?
An HMO (houses in multiple occupation) mortgage is a mortgage that is designed specifically for multi-let properties. These are mortgages that allow for letting property under more than one tenancy under the HMO mortgage terms and conditions.
Types of HMO Mortgage
Not all mortgage lenders who deal with HMO mortgages will cater for every scenario, but some lenders will specialise in each situation. Some types of HMO mortgages include:
- Student housing. Properties that are sought close to the universities and colleges with a high demand for accommodation are often used as student housing.
- Flat/house share. These normally have a minimum of three bedrooms and tenants will often be child-free professionals who are looking for independence with similar personalities around them.
- Bedsits. Buildings with several bedsits allow tenant privacy at a lower rental.
- Mixed Accommodation. An HMO would combine both accommodation units and commercial property within it. Usually, this is a flat over a shop.
Who Can Get An HMO Mortgage?
The most important thing to ensure before you approach a lender is your situation is suitable for the criteria. A mortgage broker can help you understand this. Some HMO mortgage criteria may require you to have a year of professional experience as a landlord, and others are happy to speak to those without any buy to let experience at all.
Some lenders may require a minimum income of £25,000, with others allowing no minimum income requirements.
There are lenders who are not happy to lend on HMO Properties as they deem them a risky investment. However, there are always other lenders out there who specialise in HMO mortgages. If you plan to borrow for an HMO mortgage some of the criteria that may be looked at include:
- Does the borrower have landlord experience with buy to let?
- Does the borrower have previous landlord experience with HMO?
- What is the credit rating of the borrower?
- What is the current income level of the borrower?
- What is the basic information about the proposed property? How many bedrooms are there? What’s the tenancy type? Is there a license already existing?
- What is the borrowing vehicle? (LTD company, SPV special purpose vehicle, LLP limited liability partnership).
- Where is the deposit coming from?
All of this is taken into consideration before lending.
When Would You Use An HMO Mortgage?
Those looking to let a single property out to multiple tenants or become a landlord as a professional would use an HMO mortgage, as they are considered to be more profitable than the standard buy to let mortgage.
How Would You Arrange A HMO Mortgage?
There is a stringent procedure for securing an HMO mortgage so you should ensure that your HMO mortgage is handled professionally to avoid mistakes. Here are the steps that you need to take:
- First, speak to our team of brokers. Whether you do this over the phone or in person, you should get as much information about your mortgage broker as possible. They will be able to tell you about their business and how they work before taking the information from you on your circumstances.
- The next step is obtaining an agreement in principle. Your mortgage broker will research the market and identify the right lender who can suit your requirements. They will find the lender based on your ability to borrow, your credit rating and the lending criteria on offer. After products are identified, you’ll talk with your broker about which is best for you and get a decision in principle from the lender.
- We will then submit the full mortgage application with all of the correct supporting documents, including your proof of identity, address and affordability in the form of bank statements. The rental value of the property is also considered to assess the amount of the loan that will be made available.
- Your lender will review the mortgage application and may ask for further information from you. This process will be repeated over and over until the processing team gets what they need. A valuation on the property will be carried out at this time, and you will have to pay for this. The lender will use this report when deciding how much to lend against the property.
- Your lender will then conduct a final review of your HMO mortgage application. The underwriter is the decision-maker, reviewing the entire case and checking it against the lending criteria before making an offer.
- The lender then issues the offer, and it will be sent to your broker and your solicitor who will check the request.
How Are HMO Mortgages Different To BTL Mortgages?
Buy to let properties do not allow for a multi-let tenancy. When you get a BTL mortgage, you are doing so with the view to letting out the house that you own under a single tenancy agreement. HMO mortgages are designed specifically for more than one tenancy under the terms and conditions of the HMO mortgage.
HMO Mortgage Lending Criteria
If an HMO is purchased in the UK, a local authority licence is a necessity if more than three people are living within it, if more than three rooms have a separate lock and door and if the building has three or more storeys.
The lending criteria for an HMO mortgage depends on the lender, as they all have different lending requirements. Some of the criteria that have previously been used for HMO mortgages could include:
- Applicants cannot be older than 70 when they apply
- The minimum property value must be £100,000
- There has to be a maximum LTV of 65%
- The maximum loan size has to be £750,000
- There must be landlord experience of two years as a BTL or one year as a previous HMO
- Those looking for let to buy cannot get an HMO mortgage
- All properties in the HMO have to be an Assured Shorthold Tenancy of 6-36 months at a time.
- No more than four storeys and no more than one kitchen.
- The property must not have more than seven rooms that are available to let.
- A Specialist Security valuation will be required
Things To Know About HMO Mortgages
Mortgage lenders for HMO mortgages will look at potential rental income as if you were choosing to let the property as a single tenancy. It can be more expensive to get an HMO mortgage compared to the traditional BTL mortgages and the fees can be more expensive, too.
Why Use The Mortgage Broker (London) Ltd?
At The Mortgage Broker (London) Ltd, it’s our vision to become the UK’s most trusted and respected mortgage broker. The only way for us to achieve this is by providing straightforward and transparent advice to every one of our clients.
From your first call to your last, we put customer service first before all else so you can be confident in getting expert mortgage advice.
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 2% maximum of the loan amount, but a typical fee of £395-00 is payable on offer.