I’m a landlord – do I need an HMO Mortgage?

HMO standards for ‘House in Multiple Occupation’ and it’s a property that is let out to more than three tenants who aren’t from one family, where the tenants occupy private bedrooms but share some rooms of the property such as the kitchen and living room. 

How are HMOs different from other rental properties? 

HMOs are usually occupied by students and young professionals. It can be cheaper for the tenants to rent one room of a house instead of renting a whole house to themselves, however for a landlord, the rent from all the different rooms combined is usually greater than a single buy to let property.

Therefore a landlord could achieve a higher rental income from an HMO.

What mortgage would you need for an HMO?

An HMO mortgage is a type of mortgage specifically for landlords who want to rent out their property to more than three tenants who aren’t from the same household. There are a few different key differences between this type of mortgage opposed to a single occupied buy to let mortgage:

  • HMO mortgages are usually linked to rates like LIBOR rather than the Bank of England base rate. 
  • Landlords are more likely have to prove their experience for an HMO mortgage
  • Maximum LTV ratios are typically between 60%-75%
  • HMO mortgages tend to be more expensive, both in terms of interest and fees. 

Lenders of HMO Mortgages will have requirements about the property itself. In some cases, they may specify that the property can only have one kitchen or that there needs to be communal seating for tenants, a maximum number of storeys and/or bedrooms. 

If you’re going to be renovating the property before you let it out, it may be useful sometimes to speak to a mortgage broker first who finds out what you’re planning is mortgageable or not, before starting the renovation. 

How can get a HMO Mortgage?

Many HMO mortgages are restricted to experienced landlords, in that some lenders will only accept applications from people who have been landlords for two years or more, and/or have experience in HMO letting. Some lenders may also have additional requirements.

For a HMO mortgage, you will need a sizeable deposit, most lenders are looking for at least 25% deposit. However, this can be different between lenders as some may require more of a deposit or less.

How to find the best rates for HMO Mortgages?

HMO mortgages are generally more expensive than typical buy to let mortgages due to it being harder to secure. This is when using a mortgage broker can be useful and highly beneficial to you.

Using an experienced broker like ourselves, with an excellent understanding of the type of mortgage that you’re looking for and know which lenders could potentially offer you a mortgage – we will find you the best rate based on your requirements and needs.

Call us on 01270 443510 to find out more about buy to let mortgages or to enquire about one. Alternatively, complete our contact form and a member of our team will be in touch to discuss your requirements.

 

Commercial buy to let mortgages are not regulated by the FCA.