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BTL Mortgage For HMO Properties

An HMO, or a house of multiple occupations, is a property that has been rented out by at least three unrelated people. To be classed as an HMO property the people renting rooms in the house would share facilities, such as a kitchen or bathroom. But they don’t make up a single household in the way that family relations living together would.

This is the definition provided by the UK government, which classes a household as either a single person or members of the same family living under one roof.

What does HMO property mean?

If a multi-let property is occupied by five or more people or stands at three storeys high, most UK lenders will class it as a large house in multiple occupation. Some mortgage lenders are reluctant to offer mortgage deal on HMO property, so you may need specialist help to get the right mortgage at the best price.

HMO concept becoming popular?

HMOs have become a popular choice with both tenants and landlords as the rent is often more affordable. Therefore, landlords can often benefit from higher gross yields than those generated by standard buy-to-let properties.

Houses in multiple occupation, however, are not without their challenges as operating one can be hard work due to the time demands they place on landlords, not to mention the higher running costs associated with them.

If you’re wondering whether an HMO mortgage might be a sound investment, you should discuss the mortgage implications with a specialist mortgage adviser. Not all lenders in the UK, would provide BTL mortgages for HMO properties.

Do you need a special mortgage for HMO property?

Some lenders can be reluctant to lend on HMO properties as they deem them to be high-risk investments. However, there are lenders who are happy to lend on the right HMO proposition. The whole-of-market buy to let brokers are experienced in working with specialist lenders who cater to landlords with HMO property.

Many of the UK’s biggest lenders are unwilling to deal with aspiring HMO borrowers, but there are specialist HMO mortgage lenders out there who may be happy to offer you a buy to let agreement for a multi-let property.

Most HMO mortgage lenders in the UK apply strict lending criteria to these properties. Some impose a cap on the number of bedrooms, while others base their lending decision on whether the borrower has experience as a landlord. Aspiring HMO landlords should also be aware that some of these properties require a license from the local council.

When is a commercial mortgage needed for an HMO?

The majority of the time, a commercial mortgage is not required for an HMO property as a number of buy to let lenders offer favorable rates in this sector. That said, it may be the case that a commercial lender is offering better rates for somebody in your circumstances.

Moreover, there are also situations where a commercial mortgage is a necessity in the HMO sector. This is the case when the property in question is unusual – a pub or guesthouse converted into an HMO, for instance.

A commercial lender would also be required if the property includes a commercial element, such as a downstairs shop, which is listed on the mortgage.

Are there HMO mortgages for limited companies?

In a word, yes! And if you’re set up as a limited company, it may be more tax-efficient to apply for your HMO mortgage through the company.

Not all lenders, specifically those on the high street, cater for limited companies, but the advisors we work with can connect you with a broker that specializes in arranging HMO mortgages under these circumstances.

Lending criteria for buy-to-let HMO mortgages

Most HMO mortgage lenders base their eligibility criteria on factors including…

  • The number of rooms the property has
  • Whether the borrower has experience as an HMO landlord
  • Whether the property requires a license from the local council
  • How many rooms can an HMO have?

Every HMO mortgage specialist will have their own preference on the maximum number of bedrooms the property can have, but most lenders in this sector will go up to five. Some will stretch to more than this, while others list no cap at all, and will only impose one on a case-by-case basis.

It isn’t just about bedrooms, of course. Some providers place a cap on the number of kitchens, with a number of them unwilling to offer mortgages on HMO properties with more than one. Others allow as many as six, and some lenders have no restrictions whatsoever.

At certain lenders, the number of storeys the property has may be an issue. You might find ones who are wary of buildings with more than four, while others are happy to deal with more than that and others have no limits.

Minimum property value

There are also UK lenders who list a minimum property value in their HMO mortgage requirements and this can range between £50,000 and £150,000. However, it is possible to find a provider with no minimum requirement.

Do I need experience to become an HMO landlord?

There are HMO mortgage providers out there who are only willing to deal with established HMO landlords, insisting that the applicant has two or more years’ experience in this capacity. With others, one year will do and a minority even offer HMO mortgages for first-time landlords.

Do I need a license to become an HMO landlord?

If the rental property you own has three or more habitable storeys or is occupied by five or more people from at least two households who share facilities, you must register it with the local authority to obtain a license. A number of UK lenders tie their HMO mortgage criteria directly into this as some are unwilling to offer unlicensed HMO mortgages.

If you’re in the market for an HMO property which requires a license, but you don’t hold one, there are lenders out there who will give you a limited time frame to apply for one while the application is being processed.

As a mortgage is secured against your home, it could be repossessed if you do not keep up with the mortgage repayments.

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Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of our Independent Mortgage Brokers to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisers working for or with Independent Mortgage Brokers are fully qualified to provide mortgage advice and authorised and regulated by the Financial Conduct Authority. All our independent Mortgage Brokers will offer advice specific to you and your needs and circumstances. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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