HMO Mortgage Advice

If you are looking to let a multi-room property out to multiple occupants who are not related – such as shared student accommodation – then you need to be aware of HMO legislation. Unfortunately for buy-to-let landlords, different local authorities have differing criteria on what is and is not an HMO – and which need to be formally licensed. Perhaps even more frustratingly, mortgage lenders can also vary in their definition of an HMO, and what types of properties they will lend against. For that reason, it can often be advantageous to work with an HMO mortgage broker when looking for Houses of Multiple Occupancy (HMO) mortgages.

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Author: Carl Shave - CEO and co-founder
Last updated: 07 Dec 2023

HMO Mortgages

For new and experienced investors alike, the world of buy-to-let property investment involves getting to grips with the varied responsibilities of being a landlord. It is important to keep up to date with the many laws and regulations that put obligations on you as someone renting property out to others. One important aspect of property regulation is that relating to Houses in Multiple Occupation (HMOs) – and this can also have a bearing on getting a mortgage.

The definition of HMOs as a distinct type of property letting was outlined in the Housing Act 2004 – and by the Housing (Scotland) Act 2006 in Scotland. The acts were intended to set out protections and safeguards for tenants living in multi-unit properties, which had historically shown to put tenants at greater risk, either due to the actions of other tenants, or as a result of inadequate safety precautions or property maintenance on the part of the landlord. The respective housing acts aimed to make it easier for local authorities to be sure that certain key requirements – for example, fire safety rules – are being adhered to, by requiring landlords of certain types of properties to obtain a licence. Note, however, that not all HMOs require licensing.

An HMO is broadly defined as any property in which a washing or cooking area, or a toilet, is shared by three or more people from two or more “households” – a household in this context can be a family, couple or a single person within a single unit of the property. Usually each household in a property will have a separate tenancy agreement with the landlord, but there can be exceptions – for example, there may be cases where four students sharing a house can have a single overall tenancy agreement; in this case the law would still consider them to be four separate households. Other examples of HMOs can include shared houses, hostels and shared worker accommodation. They may also be referred to by other phrases such as multi-lets, or multi-unit properties.

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What is the criteria for an HMO mortgage?

The criteria for an HMO Mortgage can and likely will vary from lender to lender however, the principles remain fairly constant with that of a standard Buy-to-Let Mortgage.  There are though some distinct differences that lenders will typically apply to HMO mortgages. Examples of some of the typical areas of HMO criteria are as follows:

  • Experience – HMO Mortgage Lenders will typically not consider a first time buyer or first time landlord. Applicants will likely need a minimum of a 12 months track record of owning a buy to let.
  • Occupancy – The maximum number of bedrooms applied by the majority is eight however there are lenders that may consider more.
  • Client types – Loans are available in personal names and limited companies. They are also available for portfolio landlords.
  • Loan sizes – Rental cover will be looked at on a multi let basis. This invariably will give a greater loan size that a typical single let dwelling.
  • Loan to Value (LTV) – Typically restricted to 75% but some lenders will consider more. Loan size may also be relevant to the maximum loan to value permitted.
  • Property value – the minimum HMO property value is usually £100,000 however this may be increased if in London and as with all criteria, this amount may vary with a few lenders not imposing any minimum property value restrictions at all.
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For many investors, Houses of Multiple Occupancy can appear, and ultimately for many, prove to be very profitable. With the opportunity to increase the amount of rent and in turn your rental yield from one property over its use as a single family dwelling, you can perhaps see why this is becoming one of the fastest growing areas of the rental market. HMOs can however also come with their additional challenges and indeed extra laws and regulations to adhere to.

One such possible challenge is obtaining any mortgage finance required. For many this is a necessity and although it is common place for a loan to be taken out to purchase or refinance an existing HMO property it can still be a daunting and confusing place. Using a broker, and where possible a specialist HMO Mortgage Broker, can prove invaluable for first time HMO Investors or indeed regardless of your experience. With such a varying landscape of criteria and products available an HMO Mortgage Broker can be best placed to ensure you get the most appropriate mortgage for your needs.

At Just Mortgage Brokers, we understand how specialised certain areas of the market can be, where knowledge of the relevant sector is not just important but indeed paramount to ensuring the customer receives the level of advice required, and indeed has the confidence that they are talking to someone who knows their stuff.  Why not contact us today to speak to one of our specialist HMO Mortgage Brokers and see how we may be able to help you.

Although the rental returns for property investors can be extremely rewarding with an HMO property, lenders invariably perceive these loans to be a higher risk and in turn typically offer slightly higher HMO Mortgage Rates for this type of lending to those of standard Buy to Let Mortgages.

As with all mortgages across the board, regardless of its type i.e. residential or buy to let, the bigger the deposit or the greater level of equity the better rate of interest will be available. Other influencing factors for what rate you will be charged or have available will be the amount of any fees. Although this is not necessarily correct for all lenders, a lower HMO Mortgage rate is usually available if you pay a higher fee. Do however, ensure this still represents best value as the lowest rate is not always the best value product for your borrowing requirements.

The type of product or scheme can also determine what rate you are charged. As a general rule, a fixed rate will be priced higher than a tracker or discounted variable rate and also if opting for a fixed rate, the longer the rate is fixed for, the more likely the higher it will be priced at from the outset i.e. a 5 year fixed will be priced higher at the outset than a 2 year scheme.

With such a variety available and a huge amount of varying criteria when it comes to lending on HMO Mortgage Rates, why not drop us a line at Just Mortgage Brokers and let us take on the hard work for you when looking for the most appropriate options.

Perhaps unsurprisingly, HMO Mortgages represent a fairly specialist niche within the mortgage market, so you should not necessarily expect to be able to pop into your local high-street bank and get a multi-unit property mortgage. Each HMO Mortgage Lender may have its own criteria and definitions of what properties make an HMO, and whether they will lend on them. For example, it is not unusual for a lender to refuse to lend on any property with more than a certain number of rooms or storeys.

HMO Mortgages Lenders can also vary in lending limits, deposit requirements and also whether they will offer lending to applicants without an established track record as a property landlord. It is not always easy to find the right lender with the best HMO Mortgage Rates, but Just Mortgage Brokers is an HMO Mortgage Broker with years of experience in sourcing lending for landlords looking to buy multi-unit properties to let. Contact us today to discuss how we can help secure the mortgage that is right for you.

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HMO Mortgages FAQs

The housing acts require that certain types of Houses of Multiple Occupancy (HMOs) – specifically larger properties with multiple tenants that potentially present higher risk – be licensed by the local authority. Mandatory licensing applies to properties with at least three stories, with five or more occupants making up at least two households. To obtain a licence you must be a “fit and proper person” – your previous track record as a landlord will be taken into account when considering your licence application.

In addition to the mandatory licensing requirements laid out by central government, local councils also have the authority to set down “additional licensing” criteria that require other types of HMO to be licensed. Additional licensing requirements can be introduced by local authorities if, for example, HMOs of a certain type or in a certain geographical area have been shown to have a greater fire risk.

If you are looking to operate an HMO, it’s important to check with your local council whether a licence if required; failing to obtain a licence where necessary is a criminal offence and can result in fines of up to £20,000 in England and Wales, and up to £50,000 in Scotland.

With definitions of what constitutes an HMO varying from one local authority to the next, and many lenders also taking a different view on the definition of a House Of Multiple Occupancy, it’s no wonder that tenants and homeowners can sometimes be confused about who is able to live in an HMO, or not.

For a house to be an HMO, there needs to generally be three or more people living there and sharing the facilities, who are not related to each other and who do not own the property. The shared facilities would be the kitchen, bathroom, stairs and designated communal areas. There are no rules stating exactly who can or can’t live in an HMO, but generally you would expect tenants to be adults, with any minors being accompanied by an adult as part of a family unit. Typically, tenants are students living away from the family home, professionals who want to live close to work but do not want to buy or rent a whole house or flat.

Many people ask if a landlord can live in an HMO. In the case of a standard Buy-to-Let mortgage, you are not allowed to use the property as your place of residence while renting it to others – the product is geared towards the whole house being used as a source of revenue. However, if you are living in your home and decide to rent out spare rooms to non-family members, your house will generally become an HMO if you take on more than two lodgers or tenants, and you will be required to meet the appropriate HMO standards for quality and safety, as enforced by your local council. If in doubt, always check rules locally.

With the changes in tax allowances and a variety of new laws being introduced for landlords, two areas that have seen significant growth within the sector when looking at the buy to market as a whole are Limited Company buy-to-lets and Houses of Multiple Occupancy (HMOs). Therefore, it is perhaps of no great surprise to see the demand for a combination of the two increase, with the levels of enquiries from people on the rise asking the question, can I get a Ltd Co HMO Mortgage.

In short, the simple answer is yes. Albeit this is perhaps one of the most growing areas of the Buy to Let market there are however still restrictions that apply with how many lenders will consider it. HMO Mortgages are much less available than standard single dwelling buy to lets however with greater choice of lenders offering limited company buy to lets it is likely that if a lender considers lending on HMO properties that they will also permit this via a Limited Company.

Our Buy-to-Let Brokers have specific training and knowledge of this sector and therefore if you are considering this as an option or indeed are a seasoned Ltd Co Buy-to-Let Investor, we are confident that you will receive the best advise available.

There may come a time that you wish to consider raising some additional funds against an HMO property that your own.  This could be for a variety of reasons such as but not limited to:

Typically the first consideration will be to enquire with the current mortgage provider on the property or as a new Remortgage however, this is not always possible or indeed may not be the best solution at the time. Therefore, an alternative option may be a secured loan.

Secured loans are available for HMO properties and typically in the same way as with other Buy-to-Let Secured Loans. Secured loans are a popular form of borrowing for landlords as on many occasions it is possible to borrow more than that which a standard mortgage can provide thus maximising their borrowing potential.

Rates and fees can on many occasions be higher than that of a standard mortgage so do ensure you carry out your research wisely and take all options into consideration.  We have access to HMO Mortgage Experts so if looking to obtain some professional advice please drop us a line for your no obligation enquiry.

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