Your Guide to HMO Mortgages
If you are a landlord or property investor curious about HMOs and the opportunities they offer, this guide on HMO mortgages has everything you need to know.
What are HMO Mortgages and How Do They Work?
HMO (standing for houses in multiple occupation) mortgages provide funding for a property where several people cohabit and share house facilities such as bathrooms and kitchens. Traditionally, this style of letting has been popular for student lets, but in recent years, it is a common way of offering rental property. This is particularly true in many cities, where the cost of renting a property is expensive, so it is more affordable for people to share living premises.
HMO mortgage is a specialist loan aimed at this type of property, providing finance for landlords or property investors. There are specific regulations that need to be adhered to, to qualify as a HMO. Many landlords are aware of these, but people entering the market will need advice from experienced professionals to help them navigate the opportunities.
What are the Benefits of Letting an HMO?
There are many benefits to letting an HMO, including:
Overall, HMO properties provide greater rental income for landlords. In dealing with more tenants, there is sometimes more work to do. It is important to mention though that HMO properties can have a higher turnover of tenants and the ongoing maintenance can be more costly when compared to a standard buy to let property.
How to Apply for an HMO Mortgage
When applying for a HMO mortgage, there are specific criteria lenders will consider. This includes:
It is important to have all necessary documentation ready, including proof of any HMO license or planning permission.
Working with a qualified mortgage advisor can ensure you have the best chance of success with your HMO mortgage application. They will be able to advise on the lenders who offer HMO mortgages, and guide you through the process step by step.
What are the Challenges for HMO Mortgage Applicants?
There may be some challenges in applying for HMO mortgage finance, including:
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How Do I Qualify for an HMO Mortgage?
To qualify for an HMO mortgage, you will need to prove that the property meets HMO regulations and has all necessary licenses. To learn more about HMO licences, please visit the Government website and their Renting Out A Property page. You should also have a strong credit history and financial stability, as well as experience as a landlord if possible.
What Deposit Do I Need for an HMO?
There is usually a need to raise at least a 25% deposit on a property for a HMO mortgage. Depending on the cost of the property, this can be a sizable amount of money. On a ￡200,000 property, a 25% deposit equates to ￡50,000. For a ￡400,000 property (which is on the very affordable side of London house prices), a 25% deposit equates to ￡100,000.
How Much Can I Borrow with an HMO Mortgage?
The amount you can borrow with an HMO mortgage will be mainly dependent upon the rental income achievable for the property. Other factors in identifying the right lender will be your experience as a landlord, your income, your credit profile and the type of tenant.
Can You Get a HMO Mortgage on a Non-Standard Construction Property?
There are lenders that will provide non standard construction mortgages on properties that are built using methods such as timber framed or concrete. These mortgages are typically provided by mortgage specialist lenders accessible through mortgage brokers.
What are HMO Mortgage Rates?
Interest rates on HMO mortgages can vary, but they are typically higher than traditional buy-to-let mortgages. This is due to HMO properties often having a higher level of risk for lenders as the turnover of tenants can be higher.
How to Explore Your HMO Mortgage Options with The Money Hub
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