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What is a HMO mortgage?

An HMO (House in Multiple Occupation) mortgage is a type of buy to let mortgage specifically designed for properties that are classified as HMOs.  

HMO mortgages can be in your personal or limited company name depending on your preference or tax situation.   

HMOs are properties that are rented out to multiple tenants who aren’t from the same household, usually sharing facilities like bathrooms and kitchens.  HMO properties will have multiple tenancy agreements in place as opposed to single one with a traditional buy to let property.  

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The main types of HMO mortgage

  • HMO Mortgage for Shared Properties – This is where a HMP property is let to a group of individuals with something in common, i.e., go to the same university or work for the same employer.   The tenants will be unrelated. Tenants will have their own bedroom but share facilities such as a kitchen, bathroom, and dining facilities etc.  
  • HMO Mortgage for a Bedsit Property – A bedsit property is like the above definition of a shared property; however, the tenants are usually professionals with nothing in common.  For example, they’re all working for different employers and are all ages etc.  
  • Section 257 HMO Mortgages – This is a mortgage on a HMO property that is usually a conversion into self-contained flats with no shared areas.  With a section 257, the conversion will not have met appropriate building regulations and still does not. 

The subject of HMO mortgage advice therefore, having an expert buy to let HMO mortgage advisor on your side throughout the whole process will prove invaluable.  

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HMO mortgage lending

Lots of rules and regulation surrounds the HMO property buy to let market detailing who can live in them and the way they operate.   

HMO mortgages are classified as higher risk lending compared with standard buy to let mortgages to lenders due to the higher renovation and legal costs involved and the availability of HMO letting agents.  Often, HMOs are managed by the buy to let landlords themselves. 

The Financial Conduct Authority does not regulate some types of buy to let or commercial mortgages.

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HMO Mortgages – Frequently Asked Questions

What is the HMO mortgage lending criteria?

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The HMO mortgage market is complicated and can be a minefield without an experienced buy to let mortgage broker by your side.  

Lending criteria is vast and there will be hurdles to overcome along the HMO mortgage application process.  

Here, we have a specialist buy to let group of mortgage advisors that have vast experience and knowledge within the HMO area.  We have many returning landlords who we help with all their lending needs, including their buy to let remortgages and bridging finance.   

As part of our free HMO mortgage consultation, we’ll understand your needs and what you are looking to achieve with your new mortgage and recommend the best way forward for your personal situation.  

HMO Mortgages for the Self Employed

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Many HMO mortgages are for self-employed landlords and investors who choose to either buy in their personal names or via a limited company buy to let.

Just like with an employed applicant, with self employed mortgage advice you’ll have to evidence earnings in the same way along with the income and potential income from your investments.

What are the key considerations of HMO Mortgages?

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  • They’re Specific! – HMO mortgages are designed for landlords who own properties that meet the HMO classification, which typically means they are larger properties rented out to multiple individuals or households. 
  • Licencing – With HMO properties you’ll often require specific licenses from the local authorities, and lenders providing HMO mortgages might consider this and you’ll need to evidence yours as part of their lending criteria. 
  • Increased Rates – Due to the increased risks associated with multiple tenancies and potential void periods, HMO mortgages might have different interest rates, fees, and eligibility criteria compared to standard buy-to-let mortgages. HMOs are commonly let by students and young professionals who are unable to meet the full cost of the property themselves.  
  • Mortgage Criteria – Lenders offering HMO mortgages often have specific criteria regarding property size, bedroom dimensions, location, tenant profile, and licensing. Your lender may require a higher deposit depending on your situation and you might be bound by stricter rules compared to traditional buy-to-let mortgages. 
  • Rental Income – Buy to let Lenders assessing HMO mortgage applications often consider the property’s potential rental income more extensively, as HMOs generally generate higher rental yields than standard properties.  It’s common for portfolio landlords to have complex spreadsheets with their income and expenditure clear. 
  • Regulation – HMO mortgages might involve additional considerations regarding compliance with regulations, especially those related to fire safety, property standards, and local authority requirements.  There will most certainly be hurdles with your lender to overcome along the way.  

Given the complexity and specific nature of HMO properties, mortgages for such properties cater to the unique challenges and opportunities presented by this type of rental investment.  

Buy to let landlords interested in HMO mortgages should carefully consider these aspects and ensure they meet the criteria set by lenders before applying for such mortgages. 

This is where the help and assistance of an experienced HMO mortgage broker will prove invaluable and could save you both time and money.  

What is the definition of a HMO property?

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A typical definition of an HMO would be a property occupied by 5 or more people, 5-7 lettable rooms and property with more than one tenancy agreement in place. 

Houses that are subject to selective licencing are only classified as HMOs where at least one of the above conditions are met. 

As a knowledgeable mortgage broker, we can provide the guidance and support you need to get you through the HMO mortgage journey. 

Can you get a residential mortgage on an HMO?

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No, you must take out a specific type buy to let mortgage aimed at HMO Landlords. Not all buy to let lenders will lend on HMO’s and those that do often have a specialist range of products. 

It’s important to see help from a mortgage broker to help save you time and money.  

If you are looking to let out your current property to buy a new one, this is called a let to buy mortgage.

How much deposit do you need for an HMO?

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The minimum deposit varies from lender to lender, but it would be no less than 25%. 

The amount of deposit you will be determined by the value of the property and how much rental income you are going to receive from your investment. 

HMO properties also have a higher refurbishment and upkeep cost than a regular buy to let due to the increases rules and regulations surrounding them.

How are HMOs valued?

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Like any other buy to let application, your new HMO mortgage lender will instruct a local independent valuer to confirm the property’s value and provide an indication of how much income you are going to receive from the property to gauge if the Investment is worthwhile.  

Are HMO’s worth it?

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For the right investors, yes! Others, no! You need a lot of money to get started and to fund the upkeep, maintenance, and legal costs.  

Often, HMOs are purchased by professional landlords, those that are used to dealing with the regulation and know what they are doing.  

For first time buyer buy to let landlords you’d struggle getting an application approved as you’ll need to evidence that you have experience in this area of investment.  

To many, becoming a landlord for an HMO property means great reward, as multiple incomes can often contribute to a higher profit margin than if you were receiving rent from a single party, such as a family. 

The downsides are that these mortgages tend to be more expensive and often entail signing on students or non-professionals as tenants, meaning income may be seasonal and inconsistent. 

Although a stereotype that doesn’t encompass everybody, student tenants are regularly known to leave the property in a less favourable state, requiring further expendable income for repairs.

Why choose a HMO mortgage broker?

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With the knowledge being a mortgage broker, we can answer any questions you may have keeping the technical jargon to a minimum.  

We have dealt with lots of HMO mortgages before so we can provide the guidance and support you need throughout the HMO mortgage.

Can you Remortgage a HMO property?

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Yes, just like with a traditional mortgage you’ll be able to remortgage a HMO property and have options such as taking a product transfer with your current lender, a remortgage to a new lender and capital raising to release money.  

Also, alternative products are available if you are looking to release money such as a secured loan, further advance, or bridging finance, what we’ll recommend will depend on any early redemption charges on your existing deal and what you are looking to achieve with the new money.  

As part of the HMO buy to let remortgage advice process, your experienced mortgage broker will advise you accordingly with the best product.

8 Reasons to choose UK Moneyman

Open all throughout the week, including weekends.

We're available to speak to at times that better suit you and your schedule.

Free HMO Mortgage Appointment.

We don't ask for any payments upfront, we're only paid on mortgage success.

You'll deal with the same dedicated case manager throughout your process.

There will be a familiar face through every step of your HMO Mortgage application.

We work for you, building relationships with landlords.

HMO Mortgages can be quite tricky to work with. We'll help you navigate the mortgage process.

Jargon free insurance advice.

Our team will recommend the most suitable insurance for your personal and financial circumstances should you become ill and unable to work.

1000s of HMO Mortgage deals.

We'll take a look at our panel to find the best mortgage deal for you, with favourable rates.

We're experienced in dealing with HMO Mortgages.

We've come across all kinds of mortgage scenarios over the years. We'll use the knowledge we've gained over the years to help you with your HMO Mortgage.

Your mortgage advisor will be with you every step of the way.

Our team will help overcome any hurdles you face along the way, like issues with property surveys and down valuations.

Pros and Risks of HMO Mortgages for Buy to Let

5 Pros of HMO Mortgages

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  1. Higher Rental Income Potential –  HMO properties often generate higher rental yields compared to traditional single-let properties. With multiple tenants, landlords can typically command higher rents, increasing overall income.
  2. Occupancy Rates – HMO properties can accommodate various tenant types, such as students, young professionals, or individuals seeking shared accommodation. This diversity with tenants can provide more stable occupancy rates.
  3. Continued Rental Income – With multiple tenants, the risk of a property being vacant is reduced. Even if one tenant leaves, the other rooms might still be occupied, ensuring continued rental income.
  4. Tax Efficiency – Some buy to let landlords find tax advantages when owning HMOs, such as being able to offset mortgage interest against rental income before calculating tax.  Alongside your HMO mortgage broker, seeking advice from a good reputable accounted is advised to maximise any tax savings.
  5. Demand – Certain areas have consistent demand for shared accommodation due to factors like universities, job opportunities, or high rental costs, providing a relatively stable rental market.  This is great news for HMO landlords!  

5 Cons of HMO Mortgages

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  1. Higher Initial Costs – Purchasing and maintaining an HMO property can be more expensive compared to a single-let property due to licensing, compliance, and potentially higher purchase prices.
  2. Management of HMO Properties – Managing multiple tenants, maintenance, and compliance with HMO regulations can be more complex and time-consuming compared to single-let properties.  Many of our HMO landlords choose to manage their properties themselves as lots of local letting agents do not offer the service.
  3. Licensing and Regulations: HMO properties often require specific licensing and compliance with strict regulations, which may vary by location. Keeping up with these regulations can be demanding and time consuming.  There are lots of rules to adhere to when buying and maintaining a HMO property with some big fines in place for non-compliance.
  4. Limited HMO Mortgage Options – Not all lenders offer HMO mortgages, and those that do may have stricter criteria, higher interest rates, or require larger deposits compared to standard buy-to-let mortgages.  Without the help of an experienced HMO mortgage broker on your side you may struggle to find the best deal and meet criteria.
  5. Potential Higher Void Periods – Despite the advantage of multiple tenants, if a significant portion of the rooms become vacant simultaneously, landlords might face higher void periods without rental income.  HMOs work best when the landlord has cash and income available from other places to cover these voids.  

Understanding these pros and cons is crucial for landlords considering HMO mortgages. It’s important to weigh these factors against individual circumstances and your property investment goals before proceeding with this type of investment. 

As always, speaking with a HMO mortgage broker alongside a reputable account is recommended so you are receiving complete advice in this area.

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