HMO Mortgages
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HMO Mortgages
What is House of Multiple Occupancy?
A House of Multiple Occupancy is a property rented out by at least three people who are not from one household, for example, a family, but they share facilities like a bathroom and kitchen. HMO’s are sometimes referred to as house shares.
What are the different types of HMO Mortgages?
It’s pretty similar to a buyer’s mortgage. So you have fixed-rate products and you’ll have available rate products, which we try to avoid sometimes, especially the SPR. And also you get an interest-only type product or repayment, which is capital interest as well.
Who can get an HMO Mortgage?
HMO mortgages are normally for property landlords providing they have had 12 months of landlord experience. If they do not, some lenders would facilitate an HMO mortgage but the rates will be higher.
When would you use an HMO Mortgage?
You would normally have an HMO Mortgage if you’re an investor with a large property such as a 7 bedroom house near a university. You can use this mortgage to maximise the yield from each of the rooms you rent out. More noticeably, HMO mortgages are used more by landlords near universities for this reason alone.
How would you arrange an HMO Mortgage?
As with any mortgage, brokers can look at the Whole of the Market to access every single lender. So we would assess the clients needs to find the best rate for them on an individual circumstance.
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How are HMO Mortgages different to Buy to Let Mortgages?
HMO Mortgages are different in that there are a lot more compliance checks which need to be conducted. One example is the area where you’re planning on starting an HMO, you may find the local council does not permit this, or they may permit this but only up to a certain number of bedrooms.
Some boroughs in London, such as Croydon and Kensington & Chelsea do not allow HMO’s, so these mortgages would not be accepted.
If you can start an HMO Mortgage, then you will find the interest rates are slightly more than your standard Buy to Let mortgage due to the fact they are a very niche product.
Other things to consider about HMO Mortgages
If you can get an HMO Mortgage, you then have to consider the regulations of running an HMO.
Fire safety regulations are the biggest obstacles to achieve. You have to have fire doors, exit signs and notice boards throughout communal areas.
Certain councils will also have a minimum square footage per bedroom too, so that’s why it is important to speak to your local planning department.
Once you obtain the licence to run an HMO, for landlords it offers the chance to maximise on a higher yield than just renting out a house to a family for example.
How can a Mortgage Broker help/Anything else you would like to add?
The only advice I can suggest is that you do your due diligence on your local council requirements is the only way you can obtain an HMO licence.
As a broker, we can advise where to start and present ideas as to where to go, what to do and the best ways to maximise on their mortgage. We have had instances in the past where a client has started work to turn a house into an HMO for the council to turn around and say that this is against their regulations and has to be put back to how it was.
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