Bespoke Finance

HMO Mortgages

 

  1. About Us
  2. Apply Online
  3. Best Buy to Let Rates
  4. What deposit is needed?
  5. What rental income is needed?
  6. Do I need a HMO Licence?
  7. Can I buy a HMO as a First Time Landlord?
  8. Convert property to HMO

HMO Mortgage Broker

Compare HMO purchase mortgages with nationwide specialist mortgage advisers online. You can save money when you compare HMO purchase mortgage rates with quotes from some of the leading mortgage providers in the UK

The rules around landlord finance can be complicated from unuseual properties, rental stress tests, limited company HMO and more so for portfolio landlords. Your circumstances can limit options from minimum income, credit score and experiance.

With Bespoke Finance you can apply online for a free enquiry and receive advice from mortgage advisers specialiseing in property investment finance.

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Our mortgage advisers analyses every mortgage on the market from over 70 lenders to find the best one for you. Once we find you the best mortgage, we’ll be with you every step of the way.

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What is a House of Multiple Occupancy (HMO)?

A House of Multiple Occupancy (HMO) is a home that is rented out by multiple people who are not from 1 household (e.g. a family).

These unrelated people share facilities like a bathroom and kitchen but have individual bedrooms. It is often called a "house share" or pictures up images of student living.

What is an HMO mortgage?

If you intend to buy (or remortgage) a property to rent it out to more than one household, you require a House of Multiple Occupancy (HMO) Mortgage.

Your standard Buy to Let Mortgage contract often limits the number of households that can live in a property and limits tenants to having just one tenancy.

An HMO mortgage is a different contract with a mortgage lender. These contracts allow you to have multiple households and each of them to have their individual tenancy (if required).

If your property does not require an HMO License, you can benefit from traditional Buy-to-Let Rates in certain circumstances. Available from a select few mortgage lenders.

If you require an HMO License or in a Selective Licensing Area you will need an HMO mortgage.

What are the best HMO Rates?

The HMO Mortgage market is in a constant flux with lots of competition. This means rates vary from time to time within the Loan-to-value (LTV) ranges. If you have a small HMO a minority of lenders may allow you to mortgage on standard buy-to-let rates, large HMOs may require commercial rates.

Given these complexities - its always best to talk to a specialist hmo mortgage adviser at Bespoke Finance to find the best mortgage for your needs and circumstances.

What deposit is needed?

The minimum HMO Mortgage deposit is 15% of the property value (85% LTV).

The rental amount can limit the maximum loan achievable, requiring higher deposits. Landlords with more substantial deposits can enjoy better HMO Mortgage products and rates.

What rental income is needed?

HMO Mortgages often have higher rental stress tests than standard buy to let properties. On the other hand, you should obtain higher rent compared to a standard buy-to-let.

New regulations limit borrowing based on the rent deemed achievable by the lender's valuer. The minimum is assessed at a rate of 5.5% ensuring a 125% coverage.

Simply for every £1,000 borrowing, you need £5.72 rent, at a minimum. As such for a £100,000 mortgage you would need at least £572 rent.

That demonstrates the minimum - mortgage lending criteria may be more robust.

Landlords who are higher rate taxpayers or have personal income below a threshold. Have higher stress tests.

Landlords who are higher rate taxpayers, often get five-year fix mortgages or invest via a limited company to obtain lower stress tests.

Property types also affect affordability with HMO Mortgages having higher stress tests compared to standard lets.

Our mortgage advisors will assess the market to help find the best mortgage given the anticipated rental amount. We can recommend structures to get the lower stress tests or help release equity to fund higher deposits.

What if the property needs conversion?

HMO Mortgage contracts typically require you to rent out the property within a short period. They do not give you time to refurb the property heavily.

Property Investors typically use short-term bridging finance from 3 to 6 months to purchase the property. Use that time to renovate, bringing it up to HMO standard (apply for HMO License). Then re-mortgage onto an HMO Mortgage at better rates. Sometimes increasing the value as they go.

When do I require an HMO License?

The new HMO rules are covered by “The Licensing of Houses in Multiple Occupation (Prescribed Description) (England) Order 2018” and will come into effect across England on the 1st of October, 2018.

You will require an HMO License (from your local authority) for any property occupied by five or more people, forming more than one separate household.

Removing the opt-out clause depending on how many stories a property has.

Do I require an HMO License before applying?

HMO Mortgage Lenders often require you to have applied for an HMO mortgage license from your Local Authority (if required) at application.

This criteria changes from lender to lender, so check with your Bespoke Finance Mortgage Adviser.

What if my council has Selective Licensing?

Each council's selective licensing rules are different, so we can not set out if you need authorization or not, here.

HMO Mortgage Lenders often require you to have applied for the selective license from your Local Authority (if required) at application. This criteria changes from lender to lender, so check with your Bespoke Finance Mortgage Adviser.

Can I get a commercial valuation?

Which type of valuation is up to the lender, typically Buy to Let lenders will use a standard valuation, and commercial lenders may in some circumstances use a commercial assessment.

Typically if the property looks like or is a converted residential property – it will be on a standard valuation. If it is an ex-care home or other purpose-built or substantially not residential – the lender can value it on commercial terms.

There are some disadvantages - commercial terms often come at low loan-to-value and often higher rates. They may require the mortgage on repayment terms and other commercial contract obligations. Such as having life insurance.

There are some advantages - the property as a commercial entity can be valued higher base don the rental income generated by the business. Rather than bricks and mortar valuation.

Most HMO Mortgage lenders base their valuation on bricks and mortar. Those that do offer it have varied conditions such as having C4 planning approved (not automatic C3 to C4 planning).

Are my room sizes too small?

Local authorities regulate room size in HMOs by relying on their discretionary powers to impose license conditions. You should check with your local authority if your room sizes are big enough.

The government also has minimum sizes. Rooms used for sleeping by one adult will have to be no smaller than 6.51 square meters, and those slept in by two adults will have to be no smaller than 10.22 square meters. (if a communal living room is supplied).

Other Room sizes may make a property unmortgageable if it has more occupants than the minimum. A kitchen for four persons needs to be 6m2, to 9m2 for six persons and 11m2 for ten persons.

When a room size is smaller, the surveyor will report back “The current configuration of the property has been assessed in accordance with the minimum room sizes and amenities published within the current RICS guidance.”.

This can get your mortgage declined. You could use bridging finance to re-arrange the rooms via refurbishment to make them fit.

Can I buy a HMO if I own no other property?

It's not impossible, but the lending options are limited. In such circumstances, it may be viable to ask a 3rd party homeowner or experienced landlord to a joint venture.

Can I buy a HMO as a First Time Landlord?

It's not impossible, but the lending options are limited. Mortgage lenders prefer HMO Borrowers to have experience as a private landlord before taking on multiple tenants.

Many mortgage lenders require 12 months experience as a Buy to let Landlord before application for an HMO Mortgage.

Do not expect to be able to mortgage a very large HMO if you have no experience as a landlord.

Can I buy an HMO with a Limited Company?

Yes. If after discussion with your accountant you believe you will be in a better position to purchase an HMO with a Limited Company SPV. We can assist you.

If you are looking for a Limited Company HMO Mortgage, Click Here.

Can I get an Interest Only HMO Mortgages?

Yes. You can obtain Interest Only HMO Mortgages or Repayment HMO Mortgages. Whichever suits your requirements and risk profile.

Are HMO Mortgages regulated?

HMO Mortgages are not regulated by the Financial Conduct Authority (FCA). These are classed as commercial mortgages and borrowers are expected to have undertaken decisions as businesses, not consumers.

There is no Consumer HMO Mortgages available on the market, where you can rent to a family member for example.

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.

Bespoke Finance is a trading style of Bespoke Finance Direct Limited.

Bespoke Finance Direct Limited is authorised and regulated by the Financial Conduct Authority (No. 715805) to transact regulated mortgages.

The FCA does not regulate some investment mortgage contracts.

Bespoke Finance Direct Limited is registered in England and Wales (No. 09623432) at 31 Church Lane, Pudsey, LS28 7LD.

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