HMO Mortgages

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HMO (Houses of Multiple Occupation)

What you need to know

Over recent years, there has been a surge in people looking to make an income or profit from buy to let properties. But one area in particular has seen a steep rise: houses in multiple occupation. You may have heard of this type of property more commonly referred to as a “house share” or “flat share”. If you’re considering a HMO, you’re going to need to consider a HMO mortgage. Here’s a little more information on the subject.

What Is a HMO?

Put simply, a house in multiple occupation (or “HMO”) is a property that you buy with the intention of letting it out to multiple tenants. A property let to three or more people from different households is known as a HMO. A property let to five or more people from different properties is known as a large HMO. 

This trend is popular with landlords buying properties to let to students. This is beneficial for students, as they can rent just one room in a property, which costs less than renting a whole property for themselves. It also allows for socialising when attending university or college. It also proves beneficial for landlords, as they are able to generate a larger profit by charging on a per-room-basis.

More recently, more landlords are deciding to invest in a house in multiple occupation for others besides students. The price of living is increasing while wages and pay are not always aligned, leaving larger numbers of young people in need of lower cost rent, which flat sharing or house sharing provides a solution to. This way of living is particularly popular in major cities, such as London where the cost of living is particularly high.

How Is a HMO Mortgage Different to a Standard Buy to Let Mortgage?

Lenders consider a HMO a specialist property, which can make obtaining a mortgage on a HMO more difficult and expensive than a standard buy to let (or “BTL”) mortgage.  

HMOs will also undergo a special valuation process, which will prove more costly in regards to fees too. Many lenders will have a minimum property value attached to a HMO. This often falls between £50,000 and £150,000. But you can find lenders who don’t have a minimum value requirement.

If you are considering a large HMO, your application will be assessed on a commercial basis. This means that they will consider the projected rental yield in relation to the value of the property.

We offer a comprehensive range of HMO mortgage products from approximately 21 lenders across the market.

Do You Need a Licence for a HMO?

Some HMOs do need a licence. So it’s important that you check whether the property you’re interested in using for this purpose can obtain a licence before investing. 

If the property you’re interested in has three or more occupiable stories or will be occupied by five or more people from different households, you will need a licence. To receive this, you will need to register the property with your local council and apply for a licence there.

Who Can Obtain a HMO Mortgage?

As with any mortgage, a HMO has eligibility criteria. A HMO mortgage will have similar criteria to a standard BTL mortgage. These will include: 

  • Your age and personal details
  • Your credit history
  • Your personal income
  • Whether you are based in the UK

There will then be extra checks on top of this. When assessing your application your chosen lender will assess how many rooms the property you’re interested in has (a HMO has to have at least three bedrooms). They will also consider whether you have any previous experience as a HMO landlord. They will also have to check whether the property has a license from the local council to be let as a HMO.

Who Can Live In a HMO?

You may be wondering what tenants can live in your HMO. The majority of landlords let their HMOs to students and young professionals, as this is where demand lies. However, anyone can live in a HMO. The demographic of your tenants doesn’t make a difference to your HMO status. 

It’s also useful to know that you can occupy the HMO as a live-in landlord if you’d like. You just need to make sure that there are two non-familial lodgers living in the property with you.

How Do You Arrange a HMO Mortgage?

Of course, arranging a HMO can be complex. But if you meet your chosen lender’s requirements, applying will be more than worth the effort. The best way to arrange a HMO mortgage is to work with a specialist mortgage broker. 

We can provide you with financial advice on a wide variety of mortgages, helping you to find the best deal possible. If you’re interested in a HMO, don’t hesitate to reach out to us for more information.

As you can see, a HMO could prove to be a viable source of income or profit for any prospective landlord. Hopefully, some of the above information has helped you along the way!

Remember, you can reach out to us for any further information or advice you may require with your HMO application! Our friendly team will be able to help you find the best deal to meet your needs and requirements.

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