Mortgage Lenders for HMO's have criteria on both you and your property. Will you qualify for an HMO Mortgage?
Typical mortgage criteria apply to you such as Credit Rating. Many HMO banks prefer you to have experience as a landlord before your first HMO Property. Others go further requiring experience as an HMO Landlord. There are a few lenders that accept borrowers without landlord experience.
As well as checking yourself and if you have experience or if its an HMO mortgage first-time Landlord. Lenders have different HMO mortgage criteria on other attributes. Some for example only like small HMO's or if they are in student areas.
To check HMO mortgage criteria, you can expect questions on:
Most HMO Buy-to-Let lenders can only be accessed via mortgage brokers. We will work through the lender's criteria to remove those in which you dont meet criteria and find the best HMO Mortgage.
There are many HMO Types which can determine which mortgage lender or HMO Product you can obtain. Some of the types include:
Some lenders prefer others, for example, options reduce on HMO Size. Most lenders do not like HMO's where Kitchens adjoin the bedsit.
HMO Mortgages are available up to 85% LTV for Purchase or Remortgage. That's just a deposit of 15% of the property value.
85% LTV Buy to Let Mortgages are the highest LTV you can get as a property investor.
In 2017 only one Buy-to-Let lender KRBS offered 85% LTV Mortgages. In 2018 they joined by Kensington Mortgages and Vida Home Loans in 2019.
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 Mortgage Adviser.
The valuation of House of Multiple Occupation (HMOs) can be undertaken under two methods:
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.
A general rule is 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 based on 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).
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.
For example, As such for a £100,000 mortgage you would need at least £572 rent, at a minimum.
This 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 lower stress tests or help release equity to fund higher deposits.
There are two types of HMO Licences: National Licensing and Selective Licensing. Neither should be confused with HMO Planning Permission.
Selective HMO Licensing is where a council selects an area of the city. Properties in this area will have to obtain a licence from the council. Each council differs, so check with yours.
National Mandatory HMO Licensing is much more simple. You will be required to have an HMO Licence if the property is rented out by 5 or more people.
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