HMO Mortgages

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Some buy to let mortgages are not regulated by the Financial Conduct Authority
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HMO Mortgages

Getting a mortgage for a House of Multiple Occupancy is straightforward with the right advice. It’s a little different from standard Buy to Let so let us give you the guidance you need.

What is an HMO Mortgage?

If you’re planning to buy a property and let it out to three or more unrelated tenants, you will need a special mortgage.

A House of Multiple Occupancy (HMO) is a property divided into separate living spaces – usually with locks on each bedroom door. There are normally some shared facilities such as a kitchen or bathroom.

A typical example of an HMO is a house shared by university students.


What are the different types of HMO Mortgage?

HMO mortgages are similar to standard residential mortgages, in that you can opt for fixed or variable terms. A fixed rate mortgage gives you control over your mortgage payments, while with a variable rate mortgage, such as a discount or tracker deal, payments can rise or fall in line with the Bank of England base interest rate.

The other key choice is between a repayment or interest-only mortgage. Many landlords prefer interest-only, as it makes the repayments much cheaper and gives you a greater monthly profit from the rent. You will need a clear exit plan, however, to repay the loan. You can pay it off in lump sums over time, or in full at the end of the term.


Who can get an HMO Mortgage?

Generally, HMO mortgages are only available to experienced landlords. Lenders will expect you to already have one or more rental properties. Most people expand into the HMO market from standard Buy to Let.

Some specialist lenders will allow first time landlords to apply for an HMO mortgage, but the criteria can be very strict.


How would you arrange an HMO Mortgage?

With HMOs there are many rules and requirements that go beyond the mortgage, including regulations and local licensing.

It’s therefore important to get specialist advice from an experienced broker. We’ll ensure you’re aware of all the responsibilities that come with HMO lettings before we even start looking for suitable mortgage deals.

Most HMO mortgage lenders will only deal with brokers, so we’ll dig into your specific situation to find HMO mortgage rates and criteria that will suit your requirements.


How are HMO Mortgages different to Buy to Let Mortgages?

HMO mortgages are generally more costly than standard Buy to Let deals, because the lender sees HMOs as higher risk.

You will usually find that there are more criteria to satisfy for HMO lenders. You will typically be asked about any or all of the following:

  • The rental income you expect the property to generate
  • Your experience as a landlord
  • Whether you are buying the property as an individual or as a limited company
  • How many rooms are available to let
  • Whether you will use a lettings agency
  • Whether the HMO needs a licence – which can vary by local authority
  • Whether each occupant will have its own Assured Shorthold Tenancy agreement
  • What type of tenant you will be letting to (students/professionals/housing association)

As with standard Buy to Let you will need a minimum of 25% deposit for the mortgage. The lower the Loan to Value, the better the rates you will be offered.

Other things to consider about HMO Mortgages

The big appeal of buying and operating an HMO is that you are likely to generate more income from the property than with tenants from a single household. A greater yield also means you can get a bigger mortgage.

As with standard Buy to Let, your borrowing is calculated based on the rental income. Typically, the rent you generate will need to cover a minimum of 125% of your mortgage payments.

Note that many HMO mortgages are limited to properties with a maximum of five bedrooms. You may need to explore commercial finance for a larger property.


What is an HMO licence and how do I get one?

In England, an HMO must have a licence if it is occupied by five or more people. Local councils can also include other types of HMOs for licensing. Visit the website to find out if you need a licence from your council.
You may be able to apply online, or you may need to contact your local authority directly.


How can Mortgages By McAteer help?

It’s essential to get good advice when buying an HMO. These mortgages are not authorised and regulated by the Financial Conduct Authority so a broker plays a crucial role in making sure you get a good value deal with a reputable lender.

We have a lot of experience in this area and support many HMO landlords to achieve their financial goals. Get in touch today for an initial conversation about how we can help.


The Financial Conduct Authority does not regulate some Buy to Let Mortgages

Approved by the Openwork Partnership on 14/03/2024