Dan Deering and Mark Lee talk all about HMO Mortgages.
What is an HMO mortgage?
HMO stands for house of multiple occupancy. It’s where you have an investment property that you are renting out on a room-by-room basis, with at least three tenants who are not from the same household.
What are the different types of HMO mortgage?
These are mortgages targeted at investment properties and rental properties. Firstly, you can have interest only – which is what most landlords tend to go for. Alternatively you can have capital repayment, much like a residential mortgage. Both options are available to you.
Plus, very much like many other types of mortgage, you have the choice to tie yourself into a fixed rate or opt for something a bit more flexible like a variable or tracker rate. Here, the interest rate could vary, but you’re not confined to a specific time period with a certain lender.
Who can get an HMO mortgage?
The majority are only available to experienced landlords – someone who has already got an investment property and is expanding into the HMO market. There are a few specialist lenders out there that would allow first time landlords to take an HMO mortgage, but the criteria is very strict.
When would you use an HMO mortgage?
It’s lending for a property that is let out to three or more individuals from different households. It might typically be a group of friends or university students rather than a traditional family.
How would you arrange an HMO mortgage?
HMO mortgages are quite specialist – it’s not just the mortgage that you need to be aware of. There are extra regulatory things that a landlord has to do, in terms of licensing requirements and checks of the property.
It’s very important to contact a broker to get that specialist advice. We’ll make sure you’re fully aware of the mortgage requirements and guide you through the other responsibilities.
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How are HMO mortgages different from Buy to Let mortgages?
The main difference is the ability to have a different type of tenant in the property, people who are unconnected to one another. A traditional Buy to Let mortgage will have restrictions that tenants need to be a family or professionals, on the basis of a standard tenancy agreement.
The other difference is mainly around the application process. There will potentially be a few more questions about your experience as a landlord, the type of tenants you plan to put in the property, and how you want to deal with rental voids.
Because HMO mortgages are quite specialist, there are more costs involved. The valuation fee on an HMO mortgage is higher than on a standard rental property. You will also find that product fees can be slightly higher too.
Is there anything else to consider about HMO mortgages?
The location of a HMO property is really important, so bear that in mind to get the maximum yield out of a property. Prime HMO properties are student properties, so you need to be really aware of the local area and what you’re going to get for your money.
We touched on licensing earlier, but you need to make sure with HMO mortgages that you do have the appropriate licences in place. When you get to nine or more tenants in a single property, that’s considered a Large HMO and the council needs to be aware of your property.
The key with anything like this is to be open and transparent. Good communication between a client, their broker and then with the lender will make it as smooth as possible.
Is there anything to add on HMOs that we haven’t covered?
You need to understand all the risks associated with having multiple tenants, alongside property standards that need to be met. For example, you need individual locks on all the bedrooms. There’s lots to read up on if you want to get into that area of the market.
It’s good to diversify your portfolio if you’ve planned to build one over time. So do your research and get in touch with us and we can point you in the right direction for a suitable mortgage.
Your property may be repossessed if you do not keep up with your mortgage repayments. The Financial Conduct Authority does not regulate some Buy to Let Mortgages.