HMO Mortgage Advice

If you want to let a multi-room property to multiple occupants, who are not related, then you need to be aware of HMOs.

Unfortunately for landlords, different local authorities have differing criteria on what is and isn’t an HMO. Perhaps even more frustratingly, lenders also vary in their definition and what types of properties they will lend against. For that reason, it can often be advantageous to work with an HMO mortgage broker.

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Author: Carl Shave - CEO and co-founder
Last updated: 16 Jul 2024

What is a HMO Mortgage?

It’s important to keep up to date with the laws and regulations put on you as someone renting property out to others. One important aspect of property regulation is that relating to Houses in Multiple Occupation (HMO) mortgages.

An HMO is broadly defined as any property in which a washing or cooking area, or a toilet, is shared by three or more people from two or more households. A ‘household’ could be a family, couple, or a single person within a single unit of the property.

Usually, each household in a property will have a separate tenancy agreement with the landlord. Although there can be exceptions. For example, there may be cases where four students sharing a house can have a single overall tenancy agreement. In this case the law would still consider them to be four separate households.

Other examples of HMOs can include shared houses, hostels, and shared worker accommodation. They may also be referred to as multi-lets, or multi-unit properties.

Note: In first instance full name is written, followed by abbreviation in brackets. Then the abbreviation can be used freely in the rest of the copy. Suggest put here rather than in the main heading (through that would not be incorrect)

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What are the criteria for an HMO mortgage?

The criteria for an HMO mortgage can and likely will vary from lender to lender. However, the principles remain constant with that of a standard mortgage. There are some distinct differences that lenders will typically apply to HMO mortgages.

Examples of some of the typical areas of HMO criteria are as follows:

  • Experience – HMO mortgage lenders will typically not consider a first-time buyer or first-time landlord. Applicants will likely need a minimum of a 12-month track record.
  • Occupancy – The maximum number of bedrooms applied by the majority is eight. However, there are lenders that may consider more.
  • Client types – Loans are available in personal names and limited companies. They are also available for portfolio landlords.
  • Loan sizes – Rental cover will be looked at on a multi-let basis. This invariably will give a greater loan size that a typical single let dwelling.
  • Loan to Value (LTV) – Typically restricted to 75% but some lenders will consider more. Loan size may also be relevant to the maximum loan to value permitted.
  • Property value – the minimum HMO property value is usually £100,000. However, this may be increased if it’s in London. As with all criteria, this amount may vary with some lenders not imposing any minimum amount.
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Getting the best HMO mortgage rates

Although the rental returns for property investors can be extremely rewarding. With an HMO property, lenders invariably perceive these loans to be a higher risk. Therefore, they offer slightly higher HMO mortgage rates to those of standard Buy-to-Let mortgages.

As with all mortgages, the bigger the deposit the better rate of interest will be available. Other factors influencing your rate will be the amount of any fees. Although this is not correct for all lenders, a lower rate is usually available if you pay a higher fee.

The type of product or scheme can also determine what rate you are charged. As a rule, a fixed rate will be priced higher than a tracker or discounted variable rate. Furthermore, if opting for a fixed rate, the longer the rate is fixed for, the higher it will be priced at. For example, a five-year fixed will be priced higher at the outset than a two-year scheme.

With many options available and varying criteria, why not get in touch with us at Just Mortgage Brokers?

Who are the best HMO mortgage lenders?

HMO mortgages represent a fairly specialist niche within the market. Therefore, you should not necessarily expect your local high street bank to offer them.

Each HMO mortgage lender will have its own criteria and definitions of what properties make an HMO. For example, it’s not unusual for a lender to refuse to lend on a property with more than a certain number of rooms.

HMO mortgage lenders can also vary in lending limits, deposit requirements and whether they offer lending to new landlords.

Finding the right lender isn’t always easy. At Just Mortgage Brokers we have years of experience in sourcing lending for landlords. Contact us today to discuss how we can help secure the mortgage that is right for you.

HMO mortgages for limited companies

With various changes in tax allowances for landlords, two areas have seen significant growth within the sector. Limited Company Buy-to-Lets and HMOs. Therefore, it’s no surprise to see the demand for a combination of the two increase. With the level of enquiries from people on the rise asking the question, can I get a Limited Company HMO mortgage?

In short, the simple answer is yes. HMO mortgages are much less available than standard single dwelling Buy-to-Lets. Although, it’s likely if a lender considers lending on HMO property, they will also permit this via a limited company.

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HMO Mortgages FAQs

The housing acts require certain types of HMOs to be licensed by the local authority. This is typically larger properties with multiple tenants that potentially present higher risk.

Mandatory licensing applies to properties:

  • with at least three stories,
  • with five or more occupants making up at least two households.

To obtain a licence you must be a “fit and proper person” and your track record as a landlord will be considered when applying.

Local councils also have the authority to set down “additional licensing” criteria. These additional licences allow other types of HMO to be licensed. For example, HMOs in a certain geographical area have been shown to have a greater fire risk.

If you are looking to operate an HMO, it’s important to check with your local council whether a licence is required. Failing to obtain a licence where necessary is a criminal offence and can result in fines of up to £20,000 in England and Wales.

For a house qualify as an HMO, there needs to generally be three or more people living there and sharing the facilities. They can’t be related to each other and can’t own the property. The shared facilities would be the kitchen, bathroom, stairs and designated communal areas.

There are no rules stating exactly who can or can’t live in an HMO, but generally you would expect tenants to be adults, with any minors being accompanied by an adult as part of a family unit. An example of some typical tenants are students or professionals.

Many people ask if a landlord can live in an HMO. In the case of a standard Buy-to-Let mortgage, you are not allowed to use the property as your place of residence while renting it to others.

If you’re living at home and rent out spare rooms to non-family members, your house will generally become an HMO. If you take on more than two tenants, you will be required to meet the appropriate HMO standards for quality and safety.

There may come a time that you wish to consider raising some additional funds against an HMO property. This could be for a variety of reasons such as but not limited to:

Typically, the first consideration will be to make an enquiry to your lender about a new . However, this is not always possible or indeed may not be the best solution at the time. Therefore, an alternative option may be a secured loan.

Secured loans are available for HMO properties, typically in the same way as with other Buy-to-Let secured loans. Secured loans can allow you to borrow more than a standard mortgage can provide.

However, rates and fees can, on many occasions, be higher than that of a standard mortgage. So, you’ll need to ensure you carry out your research wisely and take all options into consideration. We have access to HMO mortgage experts, so if you are looking to obtain some professional advice please get in touch.


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